Wall Street's crisis of confidence continued, taking stock prices around the world down with it.
The government's bailout of insurer American International Group failed to quell the turmoil. The key averages closed at their lows of the day.
According to preliminary figures, the Dow fell 449 points to 10,609. The S&P 500 dropped 57 points to 1,156. And the Nasdaq composite fell 109 points to 2,098.
The market's losses are nearly on pace with those seen in Monday's nosedive, and investors are seeking the safety of hard assets and government debt. Gold, oil and short-term Treasuries are soaring. Despite a small rebound Tuesday, the Dow has fallen more than 800 points this week.
The Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 percent stake in the company. Wall Street had feared that the insurer, which has lost billions in the risky business of insuring against bond defaults, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy.
While the moves lift some of the uncertainty surrounding two of the most precarious pillars of the U.S. financial system, investors' anxiety is far from erased.
The two Wall Street investment banks left standing -- Goldman Sachs Group Inc. and Morgan Stanley -- remain under scrutiny. And the troubles in banking could exacerbate the problems facing the U.S. economy.
The Federal Reserve said Tuesday that it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.
It also could "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said.
In return for the loan, the Fed said, the government will receive a 79.9 percent equity stake in AIG.
On Tuesday, shares of the insurance company swung violently as rumors of potential deals involving the government or private parties emerged and were dashed. By late Tuesday, its shares had closed down 20 percent -- and another 45 percent after hours.
Asian Markets Tumble
Asian stocks tumbled Thursday, falling in line with the precipitous declines on Wall Street.
Investors said they fear more companies could succumb to the global financial crisis that forced the U.S. to bail out troubled insurer American International Group. Financial stocks across Asia went into a tailspin and every regional benchmark fell deeply in the red.
Hong Kong's Hang Seng Index led the region's losses, tanking 7.22 percent.
In Japan, the Nikkei was down 3.79 percent.
Australia's S&P/ASX200 index fell more than 3.5 percent, South Korea's Kospi lost 3.6 percent and Shanghai's index fell 5.8 percent.
The Indian stock market has plunged over 5 percent in early trading.
Where Trouble Started
The problems at AIG stemmed from its insurance of mortgage-backed securities and other risky debt against default. If AIG couldn't make good on its promise to pay back soured debt, investors feared the consequences would pose a greater threat to the U.S. financial system than this week's collapse of the investment bank Lehman Brothers.
The worries were triggered after Moody's Investor Service and Standard & Poor's lowered AIG's credit ratings, forcing AIG to seek more money for collateral against its insurance contracts. Without that money, AIG would have defaulted on its obligations and the buyers of its insurance -- such as banks and other financial companies -- would have found themselves without protection against losses on the debt they hold.
"It might not just bring down other financial institutions in the U.S. It could bring down overseas financial institutions," said Timothy Canova, a professor of international economic law at Chapman University School of Law. "If Lehman Brothers' failure could help trigger AIG's going down, who knows who AIG's failure could trigger next?"
New York-based AIG operates an insurance and financial services businesses ranging from property, casualty, auto and life insurance to annuity and investment services. Those traditional insurance operations are considered healthy and the National Association of Insurance Commissioners said "they are solvent and have the capability to pay claims."
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