The Standard & Poor's 500 Index fell 3.5 percent after Wachovia Corp. required a takeover by Citigroup Inc. and lawmakers predicted a close vote on the Bush administration's $700 billion bank bailout.
The S&P 500 retreated 43.70 points to 1,169.31 at 11:17 a.m. in New York. Financial shares in the S&P 500 retreated 4.3 percent. National City Corp. plunged as much as 66 percent to $1.25, the lowest intraday level since April 1982. Sovereign Bancorp Inc. fell as much as 48 percent to a 15-year low of $4.36.
Europe's Dow Jones Stoxx 600 Index sank as much as 5 percent to 252.53, the lowest intraday level since January 2005.
The MSCI All-Country World Index of 48 nations lost as much as 4.4 percent, the steepest plunge since the Asian financial crisis 11 years ago. The MSCI All-Country World Index retreated 12 percent this month as the U.S. seized the two largest mortgage-finance companies, Fannie Mae and Freddie Mac; Lehman Brothers Holdings Inc. filed for bankruptcy; Merrill Lynch & Co. agreed to sell itself to Bank of America Corp.; American International Group Inc. was taken over by the Treasury; and Washington Mutual Inc. was seized by regulators in the biggest U.S. bank failure in history.
Russia's Micex Index lost 5.5 percent and Brazil's Bovespa slumped 6 percent. The U.K.'s FTSE 100 sank 5 percent.
Earlier, Japan stocks fell for a third day as a record drop in cargo fees for commodities and a decline in oil overshadowed speculation bailouts will quell financial turmoil. The Nikkei 225 Stock Average lost 149.55, or 1.3 percent, to close at 11,743.61 in Tokyo after gaining as much as 1.4 percent.
Indian stocks fell, with the benchmark index falling to its lowest in more than two months, after efforts to shore up paralyzed credit markets failed to assuage concerns that the global economy will slip into recession. The Bombay Stock Exchange's Sensitive Index, or Sensex, fell 3.8 percent, to 12,595 as of 4 p.m. local time, its lowest since July 16.