Desperate measures by governments in Europe and North America to steady the banking system failed to stem panic selling in global markets amid deepening gloom at the scope of the financial crisis.

Nothing seemed to stop stock markets taking, in many cases, record falls.

VIDEO: Markets down despite bailout

IN-DEPTH: Finance

"There is all-out panic," said ING senior strategist Adrian van Tiggelen in The Hague.

Dow Jones slides to four-year low

On Wall Street, the Dow Jones Industrial Average fell below the key psychological level of 10,000 points, closing at 10,021, after trading as much as 800 points lower.

In Iceland, Prime Minister Geir Haarde said the government was ready to take control of the country's banks, citing "a gargantuan crisis, which is part of a broader worldwide crisis."

European Union leaders vowed in a joint statement to "take whatever measures are necessary to maintain the stability of the financial system" and the US Federal Reserve said it would pay interest on bank deposits for the first time in a bid to increase liquidity.

Even the 50-billion-euro (68-billion-dollar) bailout of German bank Hypo Real Estate and takeover of Dutch-Belgian bank Fortis by French giant BNP Paribas did little to ease turmoil.

London and Paris stock markets nosedived by more than eight percent and Tokyo closed at a new four-year low.

"The markets are extremely volatile," said Laurent Saint Aubin, the veteran Paris-based head of the Aurel brokerage's traders. "Fluctuations like this within a single day, that's pretty rare," he added in front of a screen of red.

In a round-the-world rout, Russia's RTS stock market closed down 19.10 percent, Indonesian shares fell more than 10 percent and trading in Brazil's stock market -- Latin America's biggest -- was twice suspended after massive losses.

Doubts over effectiveness of bailout package

Doubts over the effectiveness of the 700-billion-dollar US rescue package and the European measures all hit confidence, analysts said.

After a summit of the EU's big four leaders in Paris at the weekend failed to bring about a significant breakthrough, member states' leaders issued a joint statement on Monday vowing to defend banks.

The declaration said governments would defend financial stability by providing "liquidity support through central banks, action to deal with individual banks or enhanced depositor protection schemes."

"In taking these measures, European leaders acknowledge the need for close coordination and cooperation," according to the text, which French President Nicolas Sarkozy read out on the steps of his office in Paris.

EU governments divided over best course of action

However European governments appeared divided on whether guaranteeing all deposits was the best way to safeguard confidence, and the EU commission called on member states for better coordination.

Denmark, Portugal and Iceland guaranteed deposits, emulating Germany on Sunday and Ireland and Greece last week, adding pressure on other European governments to follow suit.

The German finance ministry said the value of its guarantee was "significantly more than one trillion euros." British Prime Minister Gordon Brown called a meeting of his "economic war cabinet." Finance minister Alistair Darling said the government would consider extending insurance guarantees.

Euro falls to 13-month low

Amid the turbulence, the euro fell to a 13-month low of 1.3551 dollars. Oil prices slipped below 90 dollars a barrel amid fears of a global downturn.

International Monetary Fund chief Dominique Strauss-Kahn said the IMF's upcoming World Economic Outlook report would show a marked fall in growth and warned the crisis could trigger famines in Africa and Latin America.

The turmoil emerged after the collapse of loans to would-be US homebuyers with dark credit histories and caused a chaotic chain reaction, revealing how cheap credit throughout the financial system had created a massive bubble.

The bailout 'has not worked'

The US government approved a law Friday to buy up 700 billion dollars of bad mortgages and other assets from banks, freeing them up to start lending again. But President George W. Bush has warned the impact will not be felt immediately.

"The bank bailout has not worked," said economist Peter Morici at the University of Maryland.

"The bank bailout will provide banks with much-needed liquidity but it does not address the compensation and management practices on Wall Street that drove irresponsible decisions and gave rise to the crisis."

A few analysts tried to keep a brave face.

"Let's try to rise above this depressing deluge of doom and review why the world might not come to an end, although it sure looks bad this morning," said Ed Yardeni at Yardeni Research.

"There is an enormous amount of liquidity parked in liquid assets with near-zero interest rates. Stocks are ridiculously cheap if the world isn't coming to an end."

In Belgium, trading in shares of Fortis were suspended, the day after BNP Paribas took a controlling interest in the troubled finance group under an emergency deal with the Belgian and Luxembourg governments.

Central banks continued to pump tens of billions of dollars into interbank money markets that are now essentially on life-support from state institutions because commercial banks are too frightened to lend to each other.

In a bid to increase liquidity, the US Federal Reserve said it would begin to pay interest on bank deposits for the first time and expand its refinancing operations for commercial banks to 900 billion dollars by year-end.