European and Asian shares plunged on Monday as investors dumped both stocks and the dollar on fears more US banks could be vulnerable to the credit crisis that sank Bear Stearns.
In the US, trading was highly volatile. After sharp losses at the open stocks rebounded, but few were forecasting an end to the turbulence, with confidence plummeting and widespread expectations of a US recession.
"The shockwaves from the subprime earthquake continue to spread," commented an analyst at investment bank Calyon, Mitul Kotecha.
An emergency cut by the US Federal Reserve to its discount rate and a weekend deal for JPMorgan Chase to buy investment bank Bear Stearns at a fire-sale price created a sense of crisis on Monday that swept through global markets.
The tone was set by former US Federal Reserve chairman Alan Greenspan who wrote in The Financial Times that "the current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the Second World War."
Volatility spilled into commodities on Monday, with oil soaring to fresh highs above 111 dollars a barrel and gold jumping to new heights beyond 1,032 dollars per ounce as investors sought a safehaven from the storm.
In Europe, in London the FTSE 100 index of leading shares shed 3.86 percent, in Paris the CAC 40 fell 3.51 percent and in Frankfurt the Dax lost 4.18 percent.
Rumours of more troubled financial institutions ripped through stock markets, with shares in London-listed MF Global, a brokerage and investment firm, shedding more than 65 percent on speculation that customers were pulling out funds.
The DJ Euro Stoxx 50 index of leading eurozone shares was down 3.55 percent at the close, its lowest level since the middle of 2005.
The picture was similar in Asia, where Tokyo stocks plunged by 3.7 percent down, ending below the key 12,000 points level for the first time since August 2005.
Mumbai nosedived by 6.03 percent, Hong Kong shed 5.2 percent, Shanghai declined 3.6 percent, Seoul gave up 1.6 percent and Sydney was off 2.3 percent.
In the US at 1445 GMT, the Dow Jones Industrial Average was off a modest 0.06 percent to 11,944.17, while the Nasdaq composite shed 0.92 percent and the Standard & Poor's 500 index lost 0.64 percent.
"People are coming out of equities and going into the safehaven of something like gold and the weakness of the dollar underpinning all that is pushing oil prices to near records again," Hargreaves Lansdown analyst Richard Hunter.
In the foreign exchange market, the European single currency hit a record 1.5905 dollars in Asian trade on Monday before easing back.
In commodities, New York crude oil touched a record high 111.80 dollars per barrel while gold set an all-time high of 1,032.70 dollars per ounce.
An ongoing decline in global equities accelerated after it emerged late Friday that Bear Stearns -- the fifth-largest US investment bank -- was facing a severe funding crisis.
JPMorgan Chase announced Sunday it would acquire the bank for two dollars a share, valuing the company at about 236 million dollars (151 million euros), just a fraction of what the company was worth earlier.
Bear Stearns, which was among the hardest hit by the collapse of the US subprime or high-risk home loan sector, had a stock market value of 3.54 billion dollars (2.27 billion euros) before the news broke Friday.
"If a major US investment bank is worth 60 dollars a share a week ago and then only 2.0 dollars seven days later, what other skeletons are still to come out of the closet? This is what continues to spook the markets," said David Jones, chief market strategist at spread betting firm IG Index.
US investment banks Goldman Sachs and Lehman Brother both report earnings results on Tuesday, with speculation widespread that they will report more writedowns because of losses on mortgage-basked securities.
The dollar slumped to a fresh record low against the euro on Monday and a 12-year trough against the yen as traders also braced for a hefty cut to the Fed's main interest rate on Tuesday.
The US central bank cut its discount rate late Sunday by a quarter-point for certain financial institutions and said it would offer immediate liquidity to the brokerage system "to promote orderly market functioning."
"So far the measures by the Federal Reserve, both independently and in coordination with other central banks, have been unable to stem the sell-off, though they may be slowing it," said Barclays Capital analyst David Forrester in London.
The fear among investors is that other banks may also be experiencing a cash crunch, dealers said.
"The US market will continue to be hostage to fresh developments related to the subprime loan and credit crisis," Mizuho Research Institute analyst Koji Takeuchi said.