As fears grew that the financial crisis will go global, the Dow Jones industrials fell as much as 800 points before closing down 369.88.
WASHINGTON - With financial markets in near-meltdown, governments around the world scrambled to find new ways to infuse vast amounts of cash into banks and even directly to companies to help resuscitate the global financial system.
The Federal Reserve Monday night was weighing a plan that would in effect make it a major funder of a wide range of U.S. businesses facing imminent cash shortages. The Fed also said Monday that it would push $900 billion into the U.S. banking system, a sixfold increase in its program of lending money to banks.
The measures followed similar efforts by other central banks and governments around the world over the weekend and Monday to get financial institutions to stop hoarding money and start lending to one another and to customers.
It wasn't enough. Stock markets began a steep tumble in Asia, where most national markets were down considerably, and then declines accelerated in Europe on fears of new bank failures. The French stock index tumbled 9 percent, the German index dropped 7 percent and the British benchmark index fell nearly 8 percent. Russia was off nearly 20 percent.
In the United States, the Dow Jones industrial average fell 3.6 percent, closing below the 10,000 level for the first time since 2004.
At its worst point, the Dow was down more than 800 points, an intra-day record. The stock market rallied during the final 90 minutes Monday, and the Dow finished down about 370 points, at 9,955.50.
The average is down almost 30 percent from its all-time high of 14,164.53, set a year ago Thursday.
Broader indexes also plunged. The Standard & Poor's 500 index shed 42.34, or 3.85 percent, to 1,056.89; and the Nasdaq composite index fell 84.43, or 4.34 percent, to 1,862.96. The Russell 2000 index of smaller companies dropped 23.49, or 3.79 percent, to 595.91.
This morning, Asian markets showed some signs of life. Japan's benchmark Nikkei 225 stock index erased early losses to trade about 1.7 percent lower, at 10,292.
Markets in South Korea, India, Singapore and Taiwan all edged higher, and the Bank of Japan announced that it was keeping its interest rate unchanged at 0.5 percent.
With the crisis engulfing most of the developed world, a meeting scheduled for this week of the International Monetary Fund and World Bank will probably turn into a summit that could provide a forum for coordinated action.
But there was little sign of coordination among European leaders, who could not agree over the weekend on a common approach.
While Europe struggled to stop new bank failures, in the United States, alarm has focused on the commercial paper market, where all sorts of businesses and local and state governments turn for money for day-to-day operations. For the past week, that market has been nearly paralyzed, and Monday, the cost of such borrowing soared.
"The big gorilla is really liquidity," said Edward Liebert, of Rohm & Haas and chairman of the National Association of Corporate Treasurers.
Monday night, the Fed was drawing up plans for a special fund that would buy short-term commercial paper. The purchases would benefit banks as well as nonfinancial companies. The fund would be financed by a loan from the Fed, and any losses would probably be covered by the Treasury using its $700 billion bailout package.
Purchasing commercial paper through the new special entity would increase risks for the Treasury, and ultimately taxpayers, while potentially relieving companies of the downside risk of bad behavior, experts said.
One benefit of such an action is that it would free up money for lending and lower the interest rates banks pay to borrow money to conduct business. Monday, the rate at which banks lend to one another -- the London interbank offered rate, or LIBOR -- was 4.3 percent for a three-month loan. In normal times, it would be not much higher than the 2 percent bank lending rate set by the Fed. The premium is a measurement of the mistrust among banks and translates into higher rates for businesses and consumers, if they can get loans at all.
Another step the Fed could take would be to cut its target for short-term interest rates.
The Associated Press contributed to this report.