Amid the turbulence, the euro fell to a 13-month low of $1.3551 and oil prices dropped below $90 a barrel, their lowest level in eight months.

Shares suspended

"There's just nothing positive out there. Figures are bad in the States, Europe's bad, Japan's bad and China's probably slowing," David Spry, research manager at broker FW Holst in Melbourne, said.

The MSCI index of Asia-Pacific stocks outside Japan slid 5.35 per cent to their lowest since December 2005. Hong Kong's Hang Seng index closed down five per cent, with shares of China Mobile, China Construction Bank and HSBC leading the fall.

Trading on Russia's two main markets was suspended after the ruble-denominated MICEX nosedived more than 15 per cent and dollar-denominated RTS fell 14 per cent.

Meanwhile, Iceland's stock market suspended trading in all financial shares, including its three biggest banks, amid reports of a government rescue of the stricken banking sector.

Trading in Kaupthing, Landsbanki and Glitnir banks and other finance stocks was halted at 1000 GMT.

Geir Haarde, Iceland's prime minister, was said to be consulting opposition party leaders to discuss efforts to reassure investors.

The government last week acquired 75 per cent of Glitnir, the country's third largest bank.

Iceland is particularly vulnerable to worldwide financial turmoil as the finance sector represents a major part of the island's economy, eight times its gross domestic product.

'Miserable'

"It's a miserable state of affairs. And then you add to that the banking problems we've seen over the weekend," Henk Potts, strategist at Barclays Stockbrokers, said.

"There's the bailout plan, which is good news, but there's uncertainty over the price at which assets are going to be bought. And the reality is that it will take some time to see the benefit."

"It's a miserable state of affairs. And then you add to that the banking problems we've seen over the weekend"

Henk Potts,
strategist at Barclays Stockbrokers

Countries around the world have taken a number of measures aimed at calming the crisis but they seem to have done little for investors' nerves as they fled to government bonds, gold and the low-yielding yen.

The German government stepped in to rescue ailing mortgage lender Hypo Real Estate on Sunday after opposing a Europe-wide bailout similar to that adopted in the US.

Angela Merkel, the German chancellor, also pledged that the country would also offer an unlimited guarantee for all private savings accounts. She had previosuly criticised moves by Ireland and Greece to guarantee deposits.

"We tell all savings account holders that your deposits are safe. The federal government assures it," she said after an emergency government meeting called in an attempt to prevent a run on the banks.

So far, Britain has avoided pledging to guarantee all desposits in its banks, but the country's third largest party said on Monday that such a move was inevitable.

"Ireland's action last week to guarantee all deposits made a common European approach to deposit guarantees necessary. Germany's decision today makes it completely unavoidable," Nick Clegg, the Liberal Democrat leader, said.

Emergency meeting

British officials will discuss the financial crisis in a meeting of the new emergency economy committee on Monday, with Alistair Darling, the finance minister, reportedly considering using public funds to take stakes in banks to help shore them up.

Russian markets shut down as the value of stocks plummeted [AFP]

The plan would steer a middle course between full nationalisation of banks, such as that used to save Northern Rock and Bradford & Bingley, and the provision of further loans.

Denmark and Sweden have also moved to improve the protection of bank accounts, with Copenhagen announcing that commercial lenders had agreed to contribute about $6.4bn to a fund that will help insure account holders from losses.

In Sweden, the government said it would raise the limit for deposit insurance to $71,000. Austria is also expected to consider guaranteeing bank deposits.

'Desperation'

"European governments are looking to stabilise the financial sector by attempting to rescue some major institutions. Whilst their actions are understandable, the smell of desperation remains strong," Chris Hossain, senior sales manager at ODL Securities, said.

The European Central Bank has said it will pump $50bn into the interbank markets, where commerical banks lend and borrow cash from each other.

These markets have largely dried up since the US market for  high-risk, or subprime, mortgages collapsed more than a year ago.

In South Korea, banks were having trouble raising foreign currency funds and the government promised to give them access to the country's foreign exchange reserves, the world's sixth largest at nearly $240bn.

Officials also said that Lee Myung-bak, South Korea's president, would propose holding talks with China and Japan on the global financial crisis.