Central banks around the world unveiled a plan to pump massive amounts of cash into the global banking system in a concerted effort to boost market confidence and inject liquidity into the global markets.

The move followed a fall in the Dow Jones of nearly 300 points in morning trade to 10,869 as the market took fright at several bank nationalisations in Europe and the US despite the approval of the "son of Tarp" — the Troubled Asset Relief Programme —bailout. The FTSE 100 index of leading shares was down almost 5 per cent, taking it to a new low for the year and below the psychologically significant threshold of 5,000.

As nine central banks used currency swaps to oil the wheels of dollar liquidity in the money markets, sterling plunged and was on course for its steepest one-day drop against the dollar for at least a decade and a half.

This was in response to the nationalisation of Bradford & Bingley (B&B), the stricken UK mortgage bank, which fuelled markets' fears over Britain's battered banking sector and the fallout for its economic prospects.

In the US, the Dow Jones fell nearly 300 points in morning trade to 10,869 as the market took fright at several bank nationalisations in Europe and the US despite the approval of the "son of Tarp" — the Troubled Asset Relief Programme —bailout.

US Treasury debt staged a meteoric rally as investors scrambled for the safe haven of American government securities. The 30-year Treasury bond’s price rose more than three points. The flight to safety was even after the Federal Reserve said it would substantially increase currency swap limits to $620 billion (£342 billion ) with nine leading central banks in response to short-term strains in the money markets.

In its latest severe sell-off, the already sharply weaker pound plummeted by almost 5 cents against the dollar today compared with its level at the close of New York trading on Friday.

The fall of more than 2.5 per cent in sterling saw it tumble from $1.8445 to levels below $1.80, taking it to a 10-day low of $1.7962. The pound has now shed almost 11 per cent against the greenback from peaks above the watershed of $2 reached at this time last year.

The price of Brent crude fell more than $5 a barrel to $98.05, its lowest level for almost six months.

Markets were anxious about Britain's fast deteriorating economic outlook and the stability of its banking sector as B&B followed Northern Rock in being nationalised. The worries followed the fire sale of HBOS, the nation's biggest mortgage lender to Lloyds TSB, and led to the London stock market succumb to a fresh hammering of its leading shares.

The FTSE 100 index of British blue chip stocks closed down by 253 points, or 4.97 per cent, taking it below the psychologically significant threshold of 5,000 to 4,835.45 and to a new low for the year, down 28 per cent from the 6,730.71 level it reached on October 12, 2007.

The steep sell off of sterling and London shares came as agreement reached on Capitol Hill on a proposed $700 billion rescue plan for the US banking system was overshadowed by the latest woes for British and continental European banks. As well as B&B, the Belgian, Dutch and Luxembourg Governments nationalised parts of Fortis, the European banking and insurance giant, and agreed to inject €11.2 billion into the group.

Iceland's government also took control of Glitnir, that country's third biggest bank.

Analysts said the developments switched attention back to the international nature of the banking and financial upheavals spawned by the credit crisis.

"I think there has been a very lax attitute over the last couple of weeks ... [suggesting] it's been seen as a purely US-centric problem," Jeremy Stretch, of Rabobank, said.

"We've gone from a piecemeal response in the US to something more substantive with the bailout package. Whether it works or not is a different matter."

The euro also fell heavily against the dollar amid concern over the eurozone's banking strife and the adequacy of arrangements for bank rescues in the 15-nation bloc. The euro lost as much as 1.8 per cent against the dollar, falling to levels of about $1.4340 from a US close of $1.4613 on Friday.

Tokyo’s Nikkei 225 index was down 1.3 per cent at 11,743.61, and Hong Kong’s Hang Seng Index shed 2.1 per cent to 18,286.90.

“They’re worried that another fire is starting in Europe,” said Castor Pang, an analyst at Sun Hung Kai Financial in Hong Kong.

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