US stocks suffered their worst one-day fall since the 1987 crash yesterday after the House of Representatives shocked investors by voting to reject the Bush administration’s $700bn (£380bn) bail-out plan.

The vote in effect torpedoed efforts by governments around the world to quell the fear in the financial markets that had earlier seen five US and European banks rescued or nationalised and the world’s central banks unleashing a gigantic global liquidity operation.

The US Federal Reserve more than doubled the amount of dollars it lends abroad via other central banks to $620bn. It doubled the size of its own credit auctions to $300bn, while promising another $150bn to tide over institutions until the end of the year.

House Republicans voted roughly two-to-one against the bail-out, while the Democrats split three-to-two in favour. Congressional leaders pledged to try to build support for a fresh vote later this week, but aides said Democrats would be unlikely to try again without the promise of more Republican support.

The S&P 500 – already significantly down before the vote – plunged as the tally emerged, closing down 8.8%, its worst day since falling 20.5% on October 19 1987. The Dow Jones Industrial Average suffered its largest intra-day decline, falling 777.68 points, a 7% slide, which nearly matched its 7.3% decline when markets reopened on September 17 2001 after the terrorist attacks on New York and Washington.

Financial stocks plunged, with the heaviest selling hitting two sub-sectors: large securities houses such as Morgan Stanley and Goldman Sachs and smaller regional lenders with large portfolios of troubled mortgages such as National City and Sovereign, which fell 55.5% and 64.7%, respectively.

Financial; Times, The Times, Daily Telegraph, The Independent