The biggest-ever loss is almost double the size of the rescue package rejected by the US House of Representatives earlier Monday.
Markets around the world panicked after lawmakers voted down the $US700 billion bailout for the financial system, raising the prospect of deeper financial turmoil.
The Dow Jones Industrial Average sank 777.68 points (6.98 per cent) to close at 10,365.45, in its biggest single-day point decline ever.
Financial crisis: FTSE expected to fall 200 points, wiping £48 billion off the market
The stock market is expected to fall significantly when it opens this morning in the wake of the failed US banking bail-out, with no end in sight to the financial crisis.
Japanese share prices plummeted almost five per cent overnight after US lawmakers rejected a massive financial bailout plan, triggering a huge drop on Wall Street.
The Tokyo Stock Exchange’s benchmark Nikkei-225 index lost 579.87 points or 4.94 per cent to 11,163.74.
On Wall Street, the Dow Jones index sank 777.68 points or 6.98 per cent after the US House of Representatives voted down a £380 billion rescue of the financial system, raising the prospect of deeper turmoil.
Hiroichi Nishi, equities chief at Nikko Cordial Securities, said he had been shocked by the rejection of the package.
“The market is exploring where the bottom is now,” he said, adding that all eyes were on whether the US House will vote on the rescue plan again or the White House will come up with new measures.
As stocks plunged, Japan’s central bank injected 2.0 trillion yen (19.2 billion dollars) of emergency funds into the Tokyo money market to try to calm the renewed financial turmoil.
It was the 10th consecutive business day that the Bank of Japan (BoJ) has pumped cash into the domestic financial system to try to keep credit flowing.
Markets were seeing “a return to the state of extreme turmoil seen up to the time the US government proposed” the plan to buy up toxic debts from struggling banks, Barclays Capital analysts wrote in a note to clients.
After the Americans failed to agree on the $700 billion rescue package, experts have suggested that a drop in the FTSE could wipe a further £48 billion off the value of blue chip stocks, on top of the £64 billion loss experienced yesterday.
David Buik, of Cantor Index, said: "The FTSE could drop a further 200 points."
The FTSE fell 269.7 points yesterday, something that Vince Cable, Lib Dem Treasury spokesman, said he expected to continue today.
He said last night: "Markets have invested heavily in this bail-out. It would be amazing if there wasn't a very sharp fall tomorrow."
Government action in Britain and the US was seen by some as merely "sticking plasters" for an ever deepening crisis.
David Jones, chief market strategist at IG Index, said: "Recent events would seem to confirm that markets are too big to be swayed from their path by any one organisation - whether it is government or corporate.
"The worry is still what is unknown and yet to come out of the financial sector." e_SClBYesterday banking stocks fell in London. Barclays fell 9 per cent and merger partners Halifax Bank of Scotland and Lloyds TSB fell 18 per cent and 13 per cent respectively.
Royal Bank of Scotland suffered a 13 per cent drop as the Bradford & Bingley nationalisation also failed to end the turbulence facing Britain's banks.
The bank was also hit by its connections to insurance company Fortis, which has been given a cash injection by the governments of Holland, Belgium and Luxemburg. Fortis must now sell its stake in ABN, bought as part of the near £50 billion takeover led by RBS last year.
Gordon Brown said that he would take whatever action necessary to keep Britain's financial markets stable.
He said: "The Governor of the Bank of England, the Chancellor and I will take whatever action necessary to ensure continued stability for Britain.
"The stability of our system is something that we are doing everything in our power to maintain.
"We have taken decisive action in the last few days and that decisive action has continued over the weekend."
He added: "We are doing everything to maintain the security of families and citizens in this country."