Stocks Drop Over Continuing Credit Fears

The Nasdaq fell about 7.7 percent, and the Standard and Poor's 500 index dropped 7.2 percent.

The slide occured as fears grew that the $700 billion financial rescue plan signed into law Friday won't work quickly enough to avert a credit crisis.

It followed a similar drop in the European and Asian markets earlier Monday morning, amid growing fears that the U.S. financial crisis was spreading to the world economy.

The DAX was down 4.6 percent in Frankfurt and the FTSE 100 Index in London fell 4.7 percent. Russia suspended its exchanges after they fell more than 14 percent. In Asia, Tokyo's Nikkei 225 stock average fell 4.3 percent, the Kospi index in Seoul fell 4.3 percent, and the Hang Seng index in Hong Kong dropped 5 percent. The Standard and Poor's/ASX 200 in Sydney fell 3.3 percent.

The drops followed a tumultuous financial week in Europe. On Sunday, governments worked to prevent the collapse of two large lenders, Hypo Real Estate in Germany and the Belgian bank Fortis. The German government bailed out Hypo Real Estate to the tune of $68 billion Sunday, while France's BNP Paribas agreed to by a 75 percent stake in Fortis after a government bailout effort failed.

In an effort to stanch any financial panic, the governments of Germany, Ireland and Greece decided to guarantee private bank deposits.

"There are still a lot of issues out there," Adrian Darley, a fund manager at Resolution Asset Management in London, told the New York Times. "Deposit guarantees are just a short-term solution. It does not necessarily help with interbank loans or if you have bad loans on your books. It will take a lot more than that."

Nicholas Bibby, an economist in the Singapore office of Barclays Capital, told the paper that falling share prices in Asia were a sign that investors were still worried that U.S. financial troubles might spread to Asia, which is heavily dependent on overseas demand for its products.

"It's a fear of contagion," he said.

The President's Working Group on Financial Markets, a committee of top financial regulators that President Bush convened to address the crisis, said market conditions were extremely strained.

The nature of the crisis means policy-makers needed to use all tools available "in forceful and coordinated ways across regulatory and supervisory agencies in the United States and throughout the world," the group said, according to the AP.