Stocks tumbled around the world on Monday as a wave of selling spread from Asia through Europe and the US as banks continued to reel from funding shortages and governments scrambled to stop a behind-the-scenes run on the world's banking system.

In New York, the Dow Jones Industrial Average fell below the 10,000 mark for the first time since October 2004 while the FTSE 100 in London suffered its biggest one-day points loss ever.

Earlier in Asia, Japan's benchmark Nikkei 225 index plunged 4.3 per cent to a 4½-year low, while other markets such as Jakarta suffered a 10 per cent drop on the day. For the first time since the crisis started, emerging markets bore the brunt of fears. The MSCI Emerging Markets Index slumped 11 per cent, its largest daily decline since 1987.

"This has been the biggest day so far for the capitulation of the long emerging markets trade, which has been in the works for weeks," said Alan Ruskin, chief international strategist at RBS Greenwich Capital.

Robert Zoellick, president of the World Bank, said the crisis in Europe and America could prove a "tipping point" for many developing countries as falling exports and worsening credit conditions triggered business failures and banking emergencies.

The falls came despite a rash of government initiatives around the world, which seemed to have no positive effect on confidence, leaving investors to rush to the safety of government bonds. European equities were pummelled as investors took no comfort from grand statements from the continent's leaders at the weekend promising a co-ordinated approach and followed by individual actions. Across Europe, governments followed Germany's weekend move to guarantee retail savers' deposits, with similar steps taken in Denmark, Sweden and Austria.

In Iceland, the government launched a plan to recapitalise its stricken banks, although markets were far from convinced the measures will work. The Icelandic krona has more than halved in value against the euro and the dollar in the past year, leading Antje Praefcke of Commerzbank to warn: "We would also not be surprised to see the Icelandic krona lose its function as a medium of payment".



The FTSE Eurofirst 300 index had its third worst day ever, plunging 7.75 per cent, while in France, the CAC 40 slumped to its second worst day ever.

In Latin America, equity markets headed for their worst day since the 1998 Russia crisis, hit by falling world raw materials prices and a stampede into US safe-haven bonds. Trading was halted twice on Brazil's stock market as the Bovespa slumped more than 15 per cent, losing almost half its value since a high in late May.

Tony Crescenzi, strategist at Miller Tabak, said: "I believe that if the world's financial markets are again unstable tomorrow that the Fed will cut rates tomorrow and act as a circuit breaker."