The US Dow Jones industrial index has suffered its worst decline ever for a single day after the US House of Representatives voted against a $700bn bail-out bill in a shock decision.
The Dow, the best indicator of the financial health of the US, fell 778 points to close at 10,365 points after the bill, aimed at trying to stabilise the US economy, was rejected by 228 votes to 205 on Monday.
Ahead of the vote, markets had continued to fall with Europe's markets closing at their lowest level since 2005.
Rosiland Jordan, Al Jazeera's Washington correspondent, said: "This is a shocking loss for the Bush administration.
"A substantial number of Republicans are saying 'we don't want this increase in spending and [we] don't believe in any government intervention in the economy'."
George Bush, the US president, said he was "very disappointed" by the rejection of the bailout and had summoned top aides to plan the next steps, White House officials said.
Barack Obama, the Democratic White House contender, said: "It's important for the markets to stay calm because things are never smooth in congress and to understand that it will get done."
Nancy Pelosi, the House of Representatives speaker, said: "... the legislation has failed and the crisis is still with us.
"We must work in a bi-partisan way to have another bite at the apple."
John Terrett, Al Jazeera's correspondent in New York, said "I've never seen anything like this before.
"We're seeing quite literally shocking scenes on the floor of the New York Stock Exchange.
"People were standing around unable to know what to say to each other or what to do next ... The open-mouthed, shocked looks on the faces of the people on the stock exchange floor is something I will remember all my life.
"As the vote got going, the Dow dropped steadlily, reaching a point where it was down by more than 600 points," he said.
"Investors are reacting to the fact that this bill has failed."
He said that traders had been expecting the bail-out plan to have been voted through before markets opened on Monday.
"A lot of people were walking around Capitol Hill saying, "don't vote for the bill," and now it has collapsed. This was not the story we were expecting to tell today.
"We're in completely unchartered waters once again."
'No happy day'
Henry Paulson, the US treasury secretary said US regulators wouldl use "all the tools available" to help the US economy, but he warned their powers were "insufficient" and a rescue plan was urgently needed.
"This is up too important to simply let fail ... we need to work as quickly as possible."
The House of Representatives is to reconvene on Thursday over the issue.
The decision by the House of Represenatatives came despite urgent warnings from president Bush and congressional leaders of both parties that the US economy could nosedive into recession, or even a depression, without it.
Eric Cantor, a House Republican, said: "This is not a partisan crisis. It is an American crisis affecting everyone in the country."
Gerald Friedman, a US economist, told Al Jazeera: "The Republicans in the House of Representatives are playing chicken with world economy.
"The pro-deregulation people, the Republicans who voted this down, are the same people who have deregulated financial markets over the last 30 years.
"The people that got us into this mess are now the ones that want to wash their hands of it. It's a little hypocritical."
Terrrett earlier said that as banks were still not lending to each other - meaning the credit markets were not unfreezing - and the widening international crisis, with banks being rescued on Monday in Germany, Iceland, the UK and Belgium and with New Zealand going into recession, meant concern was still high.
"This was all supposed to be a much happier day than it turned out to be," he said.
Britain's FTSE 100 earlier tumbled 5.3 per cent at close amid the swathe of efforts around Europe to try and rescue troubled banks.
Asian markets initially rose on Monday but soon fell by as much as two per cent.
The US talks on the deal came shortly after George Bush, the US president, called for the "bold" bill to be passed, saying he was "confident" it would help "restore strength and stability to America's financial system and overall economy".