LONDON — The devastating financial flu that has sent the American economy reeling is contagious, making the rest of the world look sick too.

Stock markets yesterday plunged from Tokyo to New York to Frankfurt, as the economy suffered a global crisis of confidence driven mainly by fear that the $700 billion bailout of the U.S. financial industry won't be enough to cure its ills.

On a day of extraordinary market gyrations and expressions of concern, the Dow Jones industrial average lost as much as 800 points before regaining some ground. But the benchmark index still closed below the 10,000-point mark for the first time in four years.

It was a day of panic selling around the world, as the global impact of Wall Street's credit crisis became clearer. Experts warned that intensifying pain in Europe and Asia could slam back into a depleted U.S. economy as markets slow for American exports, one of the mainstays of recent growth.

Market analysts talked in terms of experiencing a fire that was getting harder to extinguish the more it spread, while President Bush sought patience as the government revved up the bailout plan. "It's going to take awhile to restore confidence in the financial system," Bush said.

The heart of the problem — banks too stopped-up with problems or fearful to lend — continued to devastate confidence, gum up businesses and frighten investors not just in the U.S. but across the global economy, leading some to speculate that the Fed might have to cut interest rates to get money flowing.

WASHINGTON RESPONDS

With an eye on the markets, Washington took action throughout the day. The Federal Reserve said it would significantly boost the amount of cash it loans to commercial banks on an ongoing basis, ultimately making as much as $900 billion available to get banks lending to each other again.

The Treasury Department named Neel Kashkari, a former Goldman Sachs executive, to oversee spending of the $700 billion bailout plan, while President Bush's top economic advisers vowed to move "with substantial force on a number of fronts."

Those actions alone were not enough to allay broader fears. What has become clear since the subprime mortgage crisis began, economists say, is that the global financial system can spread bad times just as effectively as good, and that the worst is probably not over yet.

"One of the worrying things at this moment is it feels like we've been suffering this financial crisis a long time. But, arguably, we're only fairly early into the economic downturn that will result from this," said John Bowler, an economist specializing in risk assessment with the Economist Intelligence Unit in London.

The past weeks have had a devastating impact on America's biggest banks and brokerages, but there are now vulnerable financial institutions around the world, many of them in Europe.

FEARS 'MUG' EUROPE

Britain and France came under intense pressure yesterday to provide 100 percent government backing to bank deposits, as European nations largely abandoned efforts to craft a unified solution to the credit crisis. Rather, they focused on shoring up their own weakening banks and markets, often at the expense of their neighbors.

The situation in Europe has worsened so quickly that Germany on Sunday announced it was guaranteeing bank deposits to stave off collapse of the country's biggest mortgage firm, less than two weeks after the country's finance minister declared his country had sound fundamentals and wasn't vulnerable to a U.S.-style crisis.

Ireland, Denmark, Greece and Iceland similarly have promised to back savings in recent days, all in an effort to reassure domestic consumers that the banking isn't collapsing. Over the weekend European governments moved swiftly to bail out their own lenders, including Belgian-Dutch Fortis and Germany's Hypo Real Estate.

Europeans, once confident of the strength of their own financial systems, "have been mugged by reality," said Robin Shepherd, a senior analyst at Chatham House, one of London's main foreign policy think tanks. "There's a lot of panic at the moment."

The financial tsunami launched in the United States has taken time to reach Europe's shores, but now threatens recession across ever-widening parts of Europe, particularly as housing bubbles from the U.K. to Spain continue to burst. France has already declared it is in recession, and Britain, Germany and Spain are widely expected to follow.

ASIAN SLUMP

In Asia, there are concerns, too. For the first time since 2003, Japan's stock market fell below 10,000 during today's trading before a late rally left the Nikkei 225 at 10,555.90, down 317.19 from yesterday. The drop came largely on fears that a lengthy U.S. downturn would result in demand for its products drying up. A Hong Kong-based bank analyst with UBS AG, a leading financial firm, predicted "recession-like" conditions in the region next year and lower growth in China.

India's stock market hit to a two-year low yesterday and a top Chinese index slumped 5 percent. Trading on exchanges in Russia and Brazil was suspended following big drops, and Indonesia's stock market fell 10 percent.

Economists predicted that what is now a crisis of confidence for world financial markets could, over the next six months, turn into a generalized world slowdown that is likely to lead to business failings and large-scale job losses.

"We really don't know at the moment" what will happen, Bowler said. But "there is a possibility things could get quite ugly."