The day followed one of Wall Street's most agonising weekends ever, which saw the demise of Lehman Brothers and forced Merrill Lynch to accept a takeover by Bank of America.

The losses sent Dow futures plunging more then 500 points ahead of Tuesday's open on Wall Street.

The Australian market is expected to tumble this morning adding to the momentum of a global sell-off.

At 6:59am, Australian futures were 135 points down.

"Cautiousness, nervousness...it's all out there and all sectors will be affected," said Jamie Spiteri of Shaw Stockbroking, who says the market could lose as much as 3% in today's trading.

"Not only financials but also the resources stocks will be affected by the downturn," he said, noting that commodities prices tanked on lowered expectations for growth.

Last night's US sell-off was "worse than what we anticipated yesterday."

Sunday's barrage of shocking news proved to be no exorcism for anxious investors and traders globally.

As concerns about American International Group's scramble for capital mounted, the Wall Street Journal reported that the US government has asked Goldman Sachs and JPMorgan Chase to lead a lending facility of $US70 billion to $US75 billion for the insurer.

Financial services companies' shares led a broad and steep decline in major indexes as investors worried about the impact of the latest twists in the credit crisis on the economy and the outlook for profits.

"The turmoil continues," said Robert Francello, head of equity trading for Apex Capital, a San Francisco hedge fund.

"And it seems to be people underestimated the impact of AIG and what the fallout of that could be."

The S&P 500 also tumbled to its lowest close since October 2005, taking out a key technical support level as it fell.

The Dow Jones industrial average slid 504.48 points, or 4.42pc, to 10,917.51 - its biggest one-day point drop since September 2001.

The Nasdaq Composite Index dropped 81.36 points, or 3.60%, to 2179.91.

A sharp slide in oil prices to below $US100 a barrel helped cap the stock market's losses a bit by boosting airlines and retailers, which are particularly sensitive to higher fuel costs, analysts said.

US crude fell $US5.47 to settle at $US95.71 a barrel on the New York Mercantile Exchange.