Shares in US financial companies plunged to an 11-year low and the benchmark Dow Jones Industrial Average skidded another 500-plus points in a late afternoon retreat.

Shares in US financial companies plunged to an 11-year low and the benchmark Dow Jones Industrial Average skidded another 500-plus points in a late afternoon retreat after Federal Reserve chairman Ben Bernanke warned that the risks to US economic growth had heightened.

Bernanke was also signalling that the Fed would likely lower interest rates at its next meeting later this month. The US interest rate is now at 2%.

The Dow, which had fallen about 140 points before Bernanke's remarks, dipped to a 300-point shortfall before climbing back.

However, shortly before the close, a major sell-off ensued, sending the index down 5.1%, or 508.39, to 9447.11, with shares of banks and property companies shouldering the brunt of the punishment.

Last night's Wall Street sell-off followed a bloodbath the day before when European stock markets tumbled by between 7% and 9%, wiping out more than $2 trillion from global market capitalisation in apparent response to the disunified panic moves among European governments.

In the UK and continental Europe, stock markets yesterday recovered some of their hefty losses from the previous day, bolstered by an earlier Fed announcement that it would buy massive amounts of short-term debt in a radical effort to ease credit markets, which have all but dried up.

Hope was also fuelled yesterday by the Reserve Bank of Australia's overnight move to cut borrowing costs by a massive one percentage point to 6%, helping to diminish the impact of another bad day for bank stocks everywhere.

Frances Hudson, global strategist at Edinburgh-based Standard Life Investments, said: "Well, the US has applied another band-aid, but the problem is that everywhere we're getting a local response to a global problem.

"That's not to say it won't be very difficult to get a concerted global effort. It looks like the markets will remain volatile for quite some time. And I don't see recovery from the credit crisis before two or three years."

Meanwhile, the FTSE-100 yesterday enacted a remarkable about-face to end 16 points higher at 4605.22, after dropping 391 points earlier.

France's CAC 40 index closed 20.24 points ahead at 732.22, while Germany's DAX index fell 1.12% to 5326.63.

It was also a brutal day for UK banks. HBOS dropped 41.5%, and Royal fell 39% as rumours emerged both may need government assistance.

Other banks also suffered - Lloyds TSB was down 13% and Barclays fell 9%.