NEW YORK, Sept 29: US stocks plunged on Monday on fears that US approval of a $700 billion financial system bailout would fail on a day bank nationalisations in Europe and a US banking takeover sent skittish investors fleeing to the safety of government debt, gold and the low-risk yen.

The euro and the British pound tumbled against the dollar and crude oil prices dropped nearly 8 per cent to below $99 a barrel on signs the financial crisis was spreading beyond the US to Europe and would cut energy demand worldwide.

US and eurozone government debt soared in one of the biggest rallies for fixed-income securities this year as fears of spreading bank failures overshadowed moves by central banks to pump hundreds of billions of dollars into frozen markets.

Shortly before 1800 GMT, the Dow Jones industrial average was down 494.85 points, or 4.44 per cent, at 10,648.28 after earlier skidding 700 points in its largest point-drop ever for the Dow. The Nasdaq Composite Index was down 135.36 points, or 6.20 per cent, at 2,047.98.

Voting on a US financial system bailout began in early afternoon but it could take some time if congressional leaders need time to rally support.

Gold rose $15 to $893.40 an ounce, jumping as much as 2.8 per cent and aversion to risk boosted the low-yielding Japanese yen after Germany’s central bank said it will hold onto the vast bulk of its gold reserves in the next 12 months.

The leading index of European shares fell more than 5 per cent to a three-and-a-half year closing low.

As US lawmakers met in Washington to vote on the bailout plan, analysts questioned whether it was sufficient, would come soon enough to shelter the US economy and stem worldwide financial turmoil.

European authorities were forced over the weekend to rescue a slew of European banks, while US regional bank Wachovia Corp sold most of its assets to Citigroup in a deal brokered by the Federal Deposit Insurance Corp.

Global money markets remained frozen even as central banks, including the Federal Reserve, pumped $330 billion into world markets in an attempt to boost liquidity.

In Europe, the British government took over troubled mortgage lender Bradford & Bingley and three European governments partially nationalised banking and insurance group Fortis. Germany’s government threw a lifeline to cash-strapped lender Hypo Real Estate.

The FTSEurofirst 300 index of leading European shares ended down 5.23 per cent at 1,047.04 points -- its lowest closing level since January 2005.

The benchmark, down about 27 per cent this year, also notched its biggest one-day per centage decline since Jan 21. The euro fell nearly 2.0 per cent against the US dollar at one point, but later pared losses. Sterling dropped to a 10-day low at $1.7962, and was last down more than 2 per cent at $1.8028, its biggest one-day loss since December 1996.

The euro fell 1.45 per cent at $1.4401, while against the yen, the dollar fell 0.85 per cent at 105.07.

US light sweet crude oil fell $7.67 to $99.22 a barrel, while London Brent crude traded down $6.89 to $96.65 a barrel.

Asian stocks fell 2 per cent overnight on questions about the effectiveness of the US government plan. –Reuters