WASHINGTON - Global financial gloom deepened Monday, with markets in disarray after US lawmakers rejected a massive rescue plan, and tensions high following government-backed rescues for ailing European banks and US-based Wachovia.

The situation took a dramatic turn as US House of Representatives delivered a stunning rejection of a 700-billion-dollar program aimed at stabilizing the battered finance sector, killing a fragile compromise plan developed over more than a week of tense negotiations.

The news sent Wall Street's blue-chip stocks crashing to their worst single-day point loss ever and prompted panic in other global markets.

"It is unclear what the next step will be. It took days of painstaking negotiations to put together the deal, and congressional leaders and administration officials may have to go back to the drawing board," said Augustine Faucher at Economy.com.

"The US is looking at a severe recession if Congress fails to pass some sort of package."

As a palpable sense of fear ricocheted through Washington, President George W. Bush said he was "disappointed" that the bailout foundered, as Democrats accused Republican conservatives of killing the bill.

US Treasury Secretary Henry Paulson said US authorities will use "all the tools available" to help the US economy, but warned their powers were "insufficient" and a rescue plan was urgently needed.

The Dow Jones Industrial Average sank 777.68 points (6.98) percent to 10,365.45 in its biggest single-day point decline ever. The slide eclipsed a 684-point drop on September 17, 2001, when the markets reopened following the September 11 terror attacks.

Most European market were already closed when the news broke, but had suffered heavy losses amid concerns about the outlook for the rescue and fears about the health of the banking sector.

Brian Bethune at Global Insight said if no new deal can be struck, the Federal Reserve may have to look for new tools to avert a deeper crisis.

"If the legislation is indeed moribund .... then the baton will pass quickly to the Fed and other central banks to deal with the fallout," he said.

"A coordinated central bank rate reduction of 50 basis points, or more, by the Fed, the Bank of England, the Bank of Canada and the Reserve Bank of Australia, is certainly not off the table given the scale of the crisis ."

Adolfo Laurenti, economist at Mesirow Financial, said the rescue plan had faced deep divisions because "there were those who felt it was a bailout for Wall Street."

He added: "I still believe there will be one form of action or another at the end of the day."

In another sign of the upheaval, Citigroup took over Wachovia bank in the latest forced marriage in the financial sector. The US government, taking on an ever greater role in the financial system, will get a stake in Citigroup in exchange for guaranteeing a large part of Wachovia assets linked to the soured US home loan market.

Treasury chief Paulson said "a failure of Wachovia would have posed a systemic risk."

Central banks meanwhile tried to shore up the banking system with more liquidity.

The US central bank said it was increasing its swap lines with other central banks by a total of 330 billion dollars to bring the amount available to 620 billion dollars.

The move came as part of a coordinated effort by global finance authorities to make credits available in dollars and ease strains in markets amid a freeze in lending among commercial banks.

Separately, the Belgian, Dutch and Luxembourg governments rescued ailing financial giant Fortis with an injection of 11.2 billion euros (16 billion dollars).

That was followed by the British government's takeover of mortgage specialist Bradford & Bingley and a rescue of Hypo Real Estate in Germany.

Belgium's government announced that it had tentatively agreed, along with its three main regions and shareholders, to help prop up embattled Franco-Belgian bank Dexia.

The statement, distributed by the office of Prime Minister Yves Leterme, made no mention of financial details. But Belgian media said the support could amount to seven billion euros (10 billion dollars).

The German government provided 35 billion euros in guarantees for an emergency credit line by a consortium of private banks to bank Hypo Real Estate, a move aimed to prevent the crisis spreading to Germany.

The dangers of not acting would have been "enormous," government spokesman Ulrich Wilhelm said.

Banks in Denmark and Iceland also had to be rescued.

Reflecting growing international unease, French President Nicolas Sarkozy, as president of the European Union, said Monday he was preparing a global summit on "a new international financial system." -- AFP