The Dow Jones Industrial Average plunged 250 points Monday to close at 7114.78, a nearly 12-year low. The last time the stock index closed below that level was May 7, 1997.
The S&P 500 also effectively erased more than 11 years of gains Monday, falling 26.7 points to close at 743.33. The technology-heavy Nasdaq index dropped 53.5 points to close at 1387.72 points, a level not seen since the dot-com bust of 2003.
The market moves came despite government assurances Monday that the US stood ready to back the financial system and a White House fiscal responsibility summit heavy on rhetoric about reducing government spending eventually. (Click here for a look at Obama's 'budget' week.)
Many analysts said they were waiting for details from the administration about how it would stabilize the banking system.
Worries over AIG
Also weighing on the market was a CNBC report that AIG, the tottering and mostly government-owned insurance giant, would announce losses of nearly $60 billion. That would represent the biggest loss in US corporate history.
In a statement, AIG said it would release financial results "in the near future." The company said it continues "to work with the U.S. government to evaluate potential new alternatives for addressing AIG's financial challenges."
Major stock markets also fell in Europe.