The sharp fall on Wall Street had market analysts in New York grasping for explanations for the biggest drop since the 1987 crash. Most believe that further losses lie ahead, with one warning that the "psychology" which had led the market ever higher has now been broken.
"We're not certain if we're following or now leading world markets lower," said Mr Joseph Barthel, chief investment strategist at Fahnestock & Co. "It's very hard to envision that the market will rebound."
"You have a lot of nervousness in the US market, and investors are taking money off the table," said Mr Robert Froehlich, chief investment strategist at Kemper Funds. "There is a broadening out of the decline. There is panic selling."
In the broader market, 29 stocks fell for every two that rose on active volume of 605 million shares on the NYSE.
The Nasdaq composite lost 113.27 points, or 6.9 per cent, to 1,537.65 in what would be its biggest one-day point loss. Technology stocks were especially hard hit by concerns that their profits would be hurt by growing economic problems in Asia.
The sell-off was also fueled by a slide in health care and drug stocks due to worries over earnings.
Technology stocks were again big losers. Compaq Computer Corp. fell 8-1/4 to 60-1/2 and was the most active NYSE issue.
The Standard & Poor's index of 500 stocks tumbled 64.49 points to 877.15.
The American Stock Exchange index lost 40.68 to 660.50.
The falls on international markets have been triggered by renewed selling on the Hong Kong stock market, which fell another 6 per cent overnight, despite attempts by the authorities in the former colony to prop up sentiment in financial markets.
Sources among American hedge funds, who have led the assaults on a string of economies across the Pacific rim, suggested firepower was already being stockpiled for an attack on the South Korean financial system soon.
"What we are seeing is a huge balloon jabbed from every angle," said Mr Edmond Warner, head of global strategy at NatWest Securities. "Hong Kong is just one jab, which might have been smoothed but for the fact that it comes straight after Thailand and Malaysia.
"In the US we have the real fear of higher interest rates and we have the big, high-fashion technology stocks, with stratospheric ratings, being pummelled. In the UK we have confusion over EMU. We have contagion."
One trader in the Square Mile in London said: "This is not a crash, it is the rather sudden deflation of financial assets. It is much more debilitating."
Stockbrokers in London are also aware that while many US institutions, when investing abroad, have concentrated on Latin America, big British pension funds, unit trusts and investment trusts have concentrated on the Pacific Rim in the belief that the region was "oversold". Investors will be now be desperate for words of comfort, when the Federal Reserve chairman, Mr Alan Greenspan, testifies on the US economy on Wednesday.
The drop in the Dow Jones industrials ranks as the 12th worst day for the average in its history, ranked by percentages.
