Markets from New York to Tokyo have recorded heavy losses in reaction to the emergency bailout of US investment bank Bear Stearns over the weekend.

In New York the Dow Jones Industrials tumbled in early trading before recovering some ground.

London's FTSE 100 index ended down 3.9%, in Paris the Cac 40 slumped 3.5% and Frankfurt's Dax fell 4.1%.

The Bank of England on Monday made an extra £5bn ($10bn) available for UK banks to borrow to ease credit fears.

Banks scrambled to access the funds and the Bank of England's offer was nearly five times over-subscribed.

US, UK and European banks were hammered; shares in Lehman Brothers fell 30%, UBS lost 10%, HBOS 12.7% and Commerzbank fell 6.8%.

Investors are worried that the collapse of Bear Stearns, one of Wall Street's biggest names, is a sign that the credit crunch is getting worse and lending might seize up.

The Dow Jones was down 0.66%, or 79.22 points, at 11,871.87 in afternoon trading after tumbling 194 points at the start of trade.

Bush urges market calm

US President George Bush attempted to reassure investors on Monday.

"We are in challenging times," Mr Bush said at a press conference.

But he added that the US authorities were "on top of the situation" but "when need be, will act decisively, in a way that continues to bring order to the financial markets."

"In the long run, our economy is going to be fine".

Lehman Brothers also attempted to reassure investors on Monday about its financial situation.

"Our liquidity position has been and continues to be very strong," Lehman Brothers said in a statement.

Asian stocks also fell, with Tokyo's Nikkei average closing 3.7% lower and Hong Kong's Hang Seng slumping 5.2%.

In Mumbai, the Sensex was down 6.5%.

Central bank help

Central banks have been trying to restore some confidence to the financial system.

On Sunday, the US Federal Reserve reduced its discount rate - the interest rate at which it lends to commercial banks - from 3.5% to 3.25% and offered to buy up the assets of other troubled banks.

The Fed is expected to lower its general interest rates on Tuesday by up to 1%.

Continued...