Global markets went into convulsions Monday after US lawmakers rejected a 700-billion-dollar rescue of the financial system, raising the prospect of deeper financial turmoil.

The Dow Jones Industrial Average plunged 700 points -- one of its biggest drops ever -- on the news and then swung wildly as investors tried to gauge the next step for the plan and the financial sector.
 

At 1907 GMT,the Dow blue-chip index had plummeted 565.34 points (5.07 percent) to 10,577.79.

  
The Nasdaq tumbled 150.50 points (6.89 percent) to 2,032.84 and the broad-market Standard & Poor's 500 index sank 80.48 points (6.63 percent) to 1,132.79.

"The important question is whether the system can save itself before the (Dow) moves toward 9,000," said Douglas McIntyre at 24/7 Wall Street. "That would wipe out over five years in gains."

The White House said on Monday that President George W. Bush would make a statement on the failed financial bailout plan on Tuesday at 8:45 a.m.
 
Crude oil plunged more than 10 dollars a barrel as investors scrambled in the face of panicked markets.

  
New York's main contract, light sweet crude for November delivery, tumbled 10.52 dollars a barrel to close at 96.37 dollars.

"It is unclear what the next step will be. It took days of painstaking negotiations to put together the deal, and congressional leaders and administration officials may have to go back to the drawing board," said Augustine Faucher at Economy.com.
 

"The US is looking at a severe recession if Congress fails to pass some sort of package."

The panic extended to Brazil, where the Sao Paulo stock market plunged 10 percent and suspended operations. Canada's S&P/TSX slid 7.1 percent and Mexico's Bolsa tumbled 6.2 percent.

Brian Bethune at Global Insight said if no new deal can be struck, the Federal Reserve may have to look for new tools to avert a deeper crisis.
   

"If the legislation is indeed moribund -- as it seemed to be on Monday afternoon -- then the baton will pass quickly to the Fed and other central banks to deal with the fallout -- which would be further tightening of credit conditions and upward pressure on borrowing spreads," he said.
   

"A coordinated central bank rate reduction of 50 basis points, or more, by the Fed, the Bank of England, the Bank of Canada and the Reserve Bank of Australia, is certainly not off the table given the scale of the crisis. At a minimum we would be looking for the Federal Reserve to cut interest rates sooner rather than later."