The U.S. stock market has plunged to its lowest point in almost nine months as fearful investors reacted to the country's first ever downgrade of U.S. debt.
The Dow Jones industrials closed down 634 points, or 5.5 percent lower that the start of trading, to end at 10,809 points. It was the first time the Dow fell below 11,000 since November and its biggest one-day point drop since December 2008.
The plummet in U.S. markets came on the heels of a global stock sell-off on this, the first trading day since Standard & Poor's downgraded its credit rating on August 5 for long term U.S. government debt by one notch, from triple A to AA+.
The agency cited Washington's inability to rein in its mounting deficits as its primary reason for doing so.
Obama Calls For Compromise
A few hours after the New York markets opened, President Barack Obama made his first public comments since the ratings downgrade and downplayed the significance of the downgrade.
"Markets will rise and fall, but this is the United States of America," he said, adding, "No matter what some agency may say, we've always been and always will be a triple-A country."
But he also added that the downgrade had shown that the country's leaders needed to demonstrate more "common sense and compromise" to tackle the massive public debt.
"The fact is, we didn't need a rating agency to tell us that we need a balanced, long-term approach to deficit reduction," he said. "That was true last week, that was true last year, that was true the day I took office. And we didn't need a rating agency to tell us that the gridlock in Washington over the last several months has not been constructive, to say the least."
Obama also said he hoped the decision by S&P would give Congress a renewed sense of urgency to solve the debt crisis and the courage to make hard political decisions on reforms to taxes and social benefit programs.
"It is not a lack of plans or policies that is the problem," he said. "It is a lack of political will in Washington. It is the insistence on drawing lines in the sand, a refusal to put what is best for the country ahead of self-interest or party or ideology. And that is what we need to change."
Many U.S. investors fled to the safety of bonds and gold, which rose above $1,700 per ounce for the first time on August 8, up from $1,421 at the start of the year.
The sell-off followed similar panic in European and Asian markets, despite the decision by the European Central Bank to purchase Italian and Spanish bonds to help the two countries avoid devastating defaults.
Europe's main stock markets fell sharply, with Frankfurt's DAX dropping 5.02 percent to 5,923.27 points, and London's FTSE-100 index down 3.39 percent to 5,068.95 points. In Paris, the CAC-40 slid 4.68 percent to 3,125.19 points.
Meanwhile Japanese Finance Minister Toshihiko Noda expressed confidence in U.S. treasuries in Tokyo, saying that as long as the United States follows through on its promises to "use the current passage of the deficit reduction bill in order to continue to work towards reducing their deficit," then there was no reason to doubt that U.S. treasuries would "remain an attractive asset."
Noda's remarks, however, were not enough to soothe nervous Asian markets.
Japan's Nikkei 225 stock average and Hong Kong's Hang Seng both closed down 2.2 percent. South Korea's Kospi ended 3.8 percent lower, and China's main exchange in Shanghai fell 3.8 percent.
ECB Takes Action
The panic followed a weekend in which world leaders tried to calm investors' fears.
The Group of Seven leading industrial countries issued a statement saying it is "determined to react in a coordinated manner" to stabilize global markets.
Members of the Group of 20 leading industrialized economies and developing nations, meanwhile, said they were ready to act together to stabilize financial markets and protect economic growth.
On August 7, German Chancellor Angela Merkel and French President Nicolas Sarkozy issued a statement calling for the implementation of key economic measures for the euro after a week of heightened economic uncertainty worldwide.
And amid growing concerns that Spain and Italy could be dragged into the eurozone debt crisis because of their budget deficits, the European Central Bank (ECB) jumped into the fray on August 7 to alleviate pressure by signaling it was ready to buy Spanish and Italian government bonds.
The ECB said it would "actively" renew eurozone bond purchases from troubled economies after Italy and Spain both announced fresh measures and reforms to bolster their economies and tackle debt problems that had pushed their borrowing costs to record highs.
Initial market euphoria over the ECB's announcement on bond purchases was short-lived, with trading on European bourses slumping again in the afternoon.
S&P 'Lack Of Knowledge'
In Washington, meanwhile, U.S. Treasury Secretary Timothy Geithner criticized Standard & Poor's, saying on August 7 that it showed "terrible judgment" by downgrading the U.S. credit rating for the first time ever.
Geithner said in an interview with NBC "News" program that the rating agency "handled themselves very poorly. And they've shown a stunning lack of knowledge about basic U.S. fiscal budget math and I think they drew exactly the wrong conclusion."
Earlier, the White House said Geithner was staying on as U.S. Treasury secretary despite calls from some Republican lawmakers for his resignation in the wake of the downgrade.
White House spokesman Jay Carney said President Barack Obama had "asked Secretary Geithner to stay on at Treasury and welcomes his decision" to continue at the post.
Geithner had indicated he might leave after a debt-ceiling increase was approved, but administration officials signaled that both Obama and the White House chief of staff had urged him not to leave now.
Beijing Chides Washington
Meanwhile, Chinese media say Democrats and Republicans in Washington need to stop blaming each other over the U.S. downgrade and find solutions.
China holds trillions in U.S. debt and sent strong signals amid the U.S. debate ahead of an August 2 default deadline that it was displeased at U.S. politicking.
China's official Xinhua news agency said that "disappointingly, instead of reflecting on themselves and sitting down to fix problems in a cooperated way, the Democrats and Republicans...are questioning the credibility of the downgrade ruling and blaming each other."
It said that "it is time for the naughty boys in Washington to stop chicken games before they cause more damages."
compiled from agency reports