The global financial crisis intensified on Monday and as governments step up efforts on both sides of the Atlantic, market turmoil has intensified with fears of a global recession rising. Iceland warned of the risk of national bankruptcy.

In Europe on Monday, the regional index, the Dow Jones Stoxx 600 Index fell 7.6% to 241.50, the largest percentage-point drop since 1987. The U.K. FTSE-100 index fell 7.9%, its largest one-day decline since Oct. 20, 1987. France's CAC-40 plunged 9%; Germany's DAX dipped 7.1%.

In Dublin, the ISEQ fell 9.6% with Irish Life Permanent falling 23.1%;  Anglo Irish Bank 21.7%; Bank of Ireland 17.5% and Allied Irish Banks losing 14.7%.

Food and property group Greencore was also a big loser as Icelandic financial firm Exista's dumped its 10.9% stake because of troubles at home. 

Shares in Dexia bank fell 21% on Monday, and France and Belgium were trying to keep the Franco-Belgian municipal lender afloat. Germany's Hypo Real Estate, which was the subject of a revised bailout on Sunday, fell over 37% on Monday.

In New York, the Dow fell as much as 800 points Monday afternoon. It closed down 369.88 points, or 3.6%, at 9955.50, returning it to early 1999 levels.

French President Nicolas Sarkozy, whose country holds the EU's rotating presidency, said in a statement that each EU country "will adopt all the necessary measures to protect the stability of the financial system." Among such measures, Sarkozy listed "the injection of liquidity by central banks, targeted measures to help certain banks, or strong action aimed at protecting deposits."

"We will...make sure that systemically important institutions will not be allowed to fail. That's our objective," Jean-Claude Juncker, who chairs the Eurogroup of Eurozone finance ministers, told a news conference. "We have all agreed that we want to do all we can to avoid financial institutions of systemic importance failing. The states will guarantee that this does not happen," Juncker added after the Eurogroup met in Luxembourg.

UK Chancellor of the Exchequer Alistair Darling on Monday night met with chief executives of several top banks in an effort to agree a plan for shoring up their capital. But the meeting didn't produce a clear outcome, according to reports.

The plan is said to be geared for banks with big UK operations - Barclays PLC, Royal Bank of Scotland Group PLC, HBOS PLC and Lloyds TSB Group PLC - and would be aimed at giving them capital if necessary, possibly by issuing preference shares to the UK government.

Belgian Prime Minister, Yves Leterme, announced that BNP Paribas, Frances's largest bank, would buy 75% of Fortis Bank Belgium for €8.25 billion in stock and would also buy the company's Belgian insurance operations. BNP Paribas will also acquire 66% of Fortis's bank in Luxembourg.

The Belgian Government would have an 11.7% stake in BNP Paribas and Luxembourg a 1.1% share and BNP Paribas is set to become the largest deposit bank in the Eurozone in terms of size of deposits for a total deal worth €14.5 billion in cash and shares.

Money-market rates rose again Monday as world banks continued to hoard cash rather than lend to counterparts.

The Euribor (euro interbank offered rate) for three-month borrowing in the Eurozone market, rose 1 basis point to 5.35% - its seventh straight record high, European Banking Federation reported today. The Euribor rate for one-month loans advanced 2 basis points to 5.15%, hitting a record for a fifth day, according to the EBF.

The Libor (London interbank offered rate), which banks charge each other for overnight dollar loans rose 37 BPs to 2.37%, while three-month Libor fell five BPs to 4.29% compared with the Fed's benchmark interest rate of 2%. The TED spread - the difference between Treasuries and what banks pay to borrow in dollars was at 3.89% today. It had averaged just 0.39% in the first half of 2007.

At its lowest point, the Dow was off 800 points Monday afternoon. It regained much of that ground in a late, sharp rally to close down 369.88 points, or 3.6%, at 9955.50, returning it to levels first seen nearly a decade ago, in early 1999.

Euribor Rates

Iceland's prime minister Geir Haarde on Monday warned of the risk of national bankruptcy on the day when the krona dived 30% forcing emergency action on the government.

The Bank of Iceland's existing benchmark interest rate is 15.5%.

The parliament approved legislation that gives the state sweeping powers over Iceland’s financial system.

Haarde said in an address to the nation that the financial regulator would have authority to dictate a bank’s operations and could even force it to merge or declare bankruptcy.

“We were faced with the real possibility that the national economy would be sucked into the global banking swell and end in national bankruptcy,” he said.“The legislation is necessary to avoid that fate.”