Fear and panic gripped the world stock markets yesterday as George W Bush sought to reassure people at home and abroad that the US government had a plan.

Fear, uncertainty and panic gripped the world stock markets yesterday as George W Bush sought to reassure people at home and abroad that the US government had a plan to mend his country's stricken financial system, spooked by the threat of a global recession.

In a statement from the White House, the US President said: "We know what the problems are. We have the tools to fix them. And we're working swiftly to do so."

He spoke of uncertainty leading to anxiety, and of that anxiety feeding upon itself but stressed America had a wide range of tools to draw on and would use them aggressively.

"We can solve this crisis and we will," he added.

Hours after he spoke, US Treasury Secretary Henry Paulson revealed the administration would move ahead with a plan to buy stock in financial institutions, similar to the £500bn package announced by Gordon Brown for UK banks on Wednesday.

It would mark the first time the US government has taken equity ownership in banks in this manner since a similar programme was employed during the Great Depression.

Mr Paulson's comments came after the finance chiefs of the G7 leading nations held a "make or break" meeting in Washington, where they issued a five-point plan to unfreeze the flow of credit.

Alistair Darling last night said: "This is a genuinely global problem and we, all of us, all over the world, need to step up to the mark and do something about it."

He added: "There is a range of things that need to be done. The critical thing is that we don't just talk about these things, we actually get on with them."

Underscoring the deep sense of crisis, Nicolas Sarkozy, the President of France, which holds the rotating leadership of the EU, announced he is to convene an emergency meeting of Europe's leaders tomorrow. It was reported Silvio Berlusconi, the Italian premier, is proposing G8 leaders meet on Monday in the US. The stock markets ended the week as they had begun it - in frenzy and freefall.

The numbers were dramatic. In London, seven chaotic minutes of trading saw screens go block red as the FTSE 100 shed 10% of its value, losing £105bn or £250m a second.

Within minutes of opening, the UK index plunged 400 points and ended the day below the psychological 4000 barrier, on 3932, down 382 or 8.8%. This represented the stock exchange's worst week since the 1987 crash, losing overall £250bn, some 21%. Over the past year, it has lost 40% of its value.

One analyst described the events in one word: "Carnage."

Once again, bank shares were badly hit.

RBS fell 25% to just 72p, HBOS was down 19% at 124p while Barclays ended 14% lower on 207p.

In America, the market was just as volatile, but ending on a relative high. Shares there fell 700 points within minutes of the US stock market opening, plunging below the 8000 point level. It later rose to close 128 points down at 8451.19.

The New York index has lost nearly 20% of its value in just 10 days and has suffered for one of its biggest weekly falls since it was created 112 years ago.

Shares in Wall Street titans Morgan Stanley and Goldman Sachs tumbled after their credit ratings were slashed, reviving concerns about the viability of their banking models.

Other markets also slumped. Those in Paris, Frankfurt and Sydney were down around 8% while in Mumbai the index fell 6.5%. In Tokyo, the weekly fall amounted to 24%, double its weekly collapse during the 1987 crash.

Such was the erratic nature of the indices that those in Moscow, Vienna and Jakarta, among others, were suspended. Elsewhere, it emerged that the amount of UK money in Iceland's collapsed banks amounted to £8bn.

As Treasury officials were in Reykjavik to try to recover British funds, Geir Haarde, Iceland's premier, who was at the centre of a diplomatic spat with Mr Brown, insisted: "The Icelandic government, of course, intends to honour its obligations."

Last night, however, it was unclear how it intended to.