Battered markets tumbled further Tuesday despite world leaders vowing to bolster financial stability, with Barack Obama defending US credit and the European Central Bank trying to stem a debt crisis.
Finance ministers and central bankers from the Group of 20 industrialised and emerging economies pledged Monday to "take all necessary initiatives in a coordinated way to support financial stability and to foster stronger economic growth in a spirit of cooperation and confidence."
But Asian markets plunged further the next day, deepening sharp losses brought on by Friday's historic credit downgrade of the United States and the debt crisis in Europe.
In Japan, the benchmark Nikkei-225 index of the Tokyo Stock Exchange fell 4.07 percent, or 370.58 points, to 8,726.98 in midmorning trade, adding to a 2.18 percent plunge on Monday.
South Korean shares also shot lower, dropping more than five percent, with the benchmark Kospi index down at 1,775.78. New Zealand, the first in the Asia-Pacific to open, dropped 3.1 percent.
European trade saw promising gains Monday on the ECB action, but these melted away by noon and the losses deepened after Wall Street opened.
On Wall Street, the Dow Jones Industrial Average fell 634.76 points -- its steepest one-day drop since late 2008 -- to close at 10,809.85, erasing all of its gains since last October.
The broader S&P 500 fell 6.7 percent to 1,119.46, while the tech-heavy Nasdaq dropped 6.9 percent to 2,357.69.
US stocks hit fresh lows for the day as Obama gave a televised speech in which he defended Washington's credit-worthiness and declared that the United States "always will be a triple-A country."
Standard & Poor's lowered the US long-term sovereign debt rating from AAA to AA+ after markets closed Friday, citing Washington's inability to rein in its deficits and reduce its debt of more than $14 trillion.
The G20 stressed that its members would maintain constant contact "to ensure financial stability and liquidity in financial markets."
Earlier, the Group of Seven industrialised countries -- Britain, Canada, France, Germany, Italy, Japan and the United States -- made a similar commitment.
Economists warned that even the long-awaited ECB intervention on bond markets was no "silver bullet" and that big obstacles remained to stabilising strained public finances and putting credible eurozone defence mechanisms in place.
The G7 and G20 statements came after a whirlwind of weekend conference calls between political leaders and officials who saw storm clouds hovering over the markets brought on by the US downgrade.
Markets had already been concerned about a slowdown in the world's biggest economy, and have been fleeing stocks and assets that would be hit by recession and uncertainty.
On Sunday, the ECB said it would "actively implement" a programme that buys eurozone bonds, a measure that seemed to be working as pressure eased on Italian and Spanish government debt.
Italy and Spain also announced measures to curb deficits and debt, and France and Germany pushed for full and rapid implementation of agreed steps to protect the euro.
Obama and Spanish Prime Minister Jose Luis Rodriguez Zapatero called for a united fight against a global economic slowdown in a telephone call.
"Both leaders highlighted the need to work in a coordinated manner to strengthen economic growth and avoid a slowdown," the Spanish premier's office said in a statement.
"Zapatero and Obama agreed to maintain contact between the economic teams of both governments so as to continue coordination with the twin goals of promoting stability and avoiding a global economic slowdown."
Obama also spoke to Italian Prime Minister Silvio Berlusconi.
London's FTSE-100 index closed down 3.39 percent to 5,068.95 points, while in Frankfurt the DAX dropped 5.02 percent to 5,923.27 points. In Paris, the CAC-40 slid 4.68 percent to 3,125.19 points.
IHS Global Insight chief economist Howard Archer said the ECB was building an essential firewall for Madrid and Rome but could not be content with "half-hearted measures in exercising its function as 'true lender of last resort' -- the markets need to be absolutely convinced."
Deutsche Bank economist Gilles Moec said the focus would now shift to the lending capacity of the European Financial Stability Facility, the eurozone's rescue fund that is too small to bail out Italy or Spain if they go the way of Greece, Ireland and Portugal.
But a German government spokesman said there were no plans to boost the 440-billion-euro ($625-billion) EFSF, which is supposed to take over bond buying from the ECB as soon as possible.
The ECB is the only European institution capable of acting fast and keeping at bay so-called bond vigilantes who strike fear into finance officials.
But Barclays Capital economists warned that it might be hard to buy enough government debt to keep the pressure off for long.
Goldman Sachs economists estimated the ECB would have to purchase at least 100-130 billion euros worth of Italian and Spanish bonds, compared with the total amount it had held until now of 74 billion euros.