Merkel, whose Christian Democrats face a tough re-election battle in Germany's most populous state on Sunday, railed against gamblers on the financial markets who she said were exacerbating an already volatile situation.

"First the banks failed, forcing states to carry out rescue operations. They plunged the global economy over the precipice and we had to initiate recovery packages. Because of these packages, we have become indebted and now, they are speculating against these debts - that is really very treacherous," she said.

"Governments must regain their supremacy over the markets, which they no longer have, and for that we need much stricter global rules," she added, at a debate on Europe organised by a public broadcaster. Merkel said it was now up to the European Union member states to reassert their authority and shore up the financial rules governing the bloc.

"We must clearly demonstrate that in Europe we have the political power, each in his own country, of getting back on the track of the Stability and Growth Pact," she said.

At the height of the panic, one trader, on the condition of anonymity, said he heard fixed-income desks in Europe shut down early because there was no liquidity - basically European banks are halting lending right now. "This is similar to what took place pre-Lehman Brothers," the trader said.

Just before the panic started, which was around 2:30pm ET, Mohamed El-Erian said on CNBC that the Greek crisis is about to spread. "We've seen a crisis start in a country - Greece - become regional, impact the whole of the Euro zone and is on the verge of truly going global," said El-Erian, CEO of the world's biggest bond fund.

Rochdale analyst Dick Bove said the riots in Greece, which escalated after the Greek austerity bill was passed, are also a telling sign.

"There is simply a growing recognition that Greece has got to default," said Rochdale banking analyst Dick Bove. "The riots in the streets showed the decision to repay the debt was not going to be made by the people in Germany, France and Switzerland, it's going to be made by people in Greece and they're not going to repay it," he said. "Anyone seeing the riots is going to recognize that this government is going to be thrown out and anything replacing this government is going to be far more leftist leaning and they're going to repudiate."

At one point the Dow Jones was down by more than 9%, its worst fall since 1987, before starting to recover. At close in New York the Dow Jones was down about 3.20%, the S&P down 3.24%, and Nasdaq 3.44%. The BBC's Business Editor Robert Peston said the market panic had been precipitated by "fear of a knock-on from Greece and other European countries on the global financial system".

Computer trading is thought to have cranked up the losses, as programmes designed to sell stocks at a specified level came into action when the market started falling. "I think the machines just took over," said Charlie Smith, chief investment officer at Fort Pitt Capital Group. "There's not a lot of human interaction. We've known that automated trading can run away from you, and I think that's what we saw happen today."

As polling stations around Britain opened at 7am today, latest UK opinion polls suggest David Cameron is within touching distance of achieving a working majority. But while polls still pointed to a hung Parliament, economists warned that Britain could ill-afford a period of political uncertainty.

The need for decisive leadership was underlined by official figures showing the UK's budget shortfall will be the biggest in the EU this year - even overtaking Greece. With 'contagion' from Athens threatening to spread through other debt-laden economies, David Cameron made a last-ditch plea to voters to back a strong Tory government.

He told the Daily Mail that unless Britain 'rolled up its sleeves' and got on with paying off its deficit, it risked an economic crisis.

'This is the most important election any of us can remember,' the Tory leader declared. 'We need to get on and take decisions, not haggle and bicker.'

But Gordon Brown rejected any comparisons between the two countries. 'Greece is in a different stratosphere as far as debt is concerned,' he insisted. The frenetic last day of campaigning was overshadowed by events in Athens, where crowds fighting deep emergency budget cuts torched government buildings and banks and tried to storm parliament.

Police were attacked with firebombs, paving stones and chunks of marble hacked from historic buildings. They hit back with stun grenades and tear gas. The rioting spread to the northern city of Thessaloniki as a 24-hour general strike brought the country to a halt.

American investors got a sampling this week of what further deterioration in the euro zone could taste like. On the good side, investors rushed into perceived harbors - the dollar and Uncle Sam's own debt. On the bad side, the swoon in prices of American shares and corporate debt indicated the long reach of a foreign crisis.

Looking forward, an encumbered euro zone economy isn't good news for global growth, an essential ingredient in the still developing US economic recovery. A new European recession would slow demand for American exports, which would be less competitive in any case, thanks to the crisis-strengthened dollar. Then there is the interconnected global financial system. Few envisioned that lax lending standards for subprime loans would start a chain reaction that ended with a global crisis and recession.

The European Union is trying to keep its problems local, by helping Greece and stamping out brush fires breaking out in Portugal and Spain. But troubles could spread rapidly, especially if European politicians balk at offering aid or some banks begin to buckle under their sovereign debt holdings. In a complex system, the woes might rapidly cross borders and oceans. The International Monetary Fund's involvement in the bailout also means that the United States is stretching itself further. As the largest shareholder in the fund, it is effectively lending Greece money when private markets will not.

Of course, the US government benefits from the crisis in one important way - at least for a while. If Europe were sound, investors would probably be more worried about the American fiscal deficit of $1.5 trillion, even if the latest budget news is more positive. Unfortunately, the ease of placing government debt could give policymakers the idea that huge deficits don't matter. They will, though, a crisis or two from now.

But Saturday's failed terrorist bomb in the Times Square tourist hot spot has provided the authorities with a new argument for expanding a sometimes controversial security blanket of cameras, sensors and analytical software. The system "will greatly enhance our ability and the ability of the police to detect suspicious activity in real time, and disrupt possible attacks," Mayor Michael Bloomberg said Monday.

The high-tech system, modeled on the "ring of steel" in London's financial district, is already in service in lower Manhattan, where Wall Street and the World Trade Center reconstruction site are located. Headquartered at 55 Broadway, the Lower Manhattan Security Initiative goes far beyond the traditional hodgepodge of police cameras, such as the 82 devices installed around Times Square.

Instead, an integrated system maintains an unblinking eye, not just watching, but constantly collecting license plate numbers and video of pedestrians and drivers, as well as detecting explosives and other weapons. An important component of the program is coordination between the police network and private business cameras, something that has not been established in Times Square, causing detectives significant extra work.

Also, a separate, but similar program called Operation Sentinel plans to log every vehicle entering Manhattan Island by scanning their license plates and checking for radiation.

Petrol bombs were thrown at police who responded with pepper spray, tear gas and stun grenades. Protesters are angered by spending cuts and tax rises planned in return for a 110 billion euro (95 billion pounds) bail-out for Greece. Parliament is to vote on the measures by the end of the week.

Measures include wage freezes, pension cuts and tax rises. They aim to achieve fresh budget cuts of 30 billion euros over three years, with the goal of cutting Greece's public deficit to less than 3% of GDP by 2014. It currently stands at 13.6%. Outside parliament, a group of protesters rushed up a flight of steps, taunting MPs to come out and calling them "thieves".

Riot police forced them back, but right next to parliament, others groups set buildings on fire - including a tax office. The Greek protesters' ire is aimed against symbols of capitalism, says the BBC's Malcolm Brabant in Athens. Chancellor Angela Merkel urged MPs to back the emergency loan package agreed by European finance ministers at the weekend.

It requires Germany to pay the largest proportion of the loans. "Quite simply, Europe's future is at stake," she said. The EU has agreed to provide 80 billion euros (69 billion pounds) in funding - of which around 22 billion euros would come from Germany - while the rest will come from the International Monetary Fund (IMF).

Last month, ash clouds from the same volcano grounded flights for six days. The situation in the skies has been changing hour by hour and the no-fly zone will be re-assessed by the CAA at 1900 BST. Forecasts show the 60-nautical-mile buffer zone imposed around high concentrations of ash is close to some airports in northern England.

However, the latest advice issued by the CAA said airports in north-west England could safely stay open on Wednesday. It added that south-east England was unlikely to be affected. The fresh disruption on Tuesday came as European Union transport ministers met in Brussels to agree measures they hoped would help prevent further disruption to air travel as a result of volcanic ash.

The steps include speeding up current plans to integrate Europe's airspace, creating a "single European regulator for a single European sky". The meeting came after criticism from the airline industry that governments took an over-cautious approach to April's ash cloud crisis and grounded flights unnecessarily.

It came as Greece was paralysed by a nationwide general strike on Wednesday - the first major test of the socialist government's resolve to push through unprecedented austerity cuts needed to avert a fiscal meltdown. The euro continued to weaken against the dollar in Asian trading, hitting $1.2958, as investors doubted whether 110 billion euros (95 billion pounds) of loans from the European Union and the International Monetary Fund could stop contagion to other vulnerable countries such as Spain and Portugal.

Investors are worried that these countries may need even larger debt bailouts. Hong Kong's Hang Seng fell 2pc, while China's benchmark index in Shanghai dropped 2.1pc. Australia skidded 1.9pc, Indonesia slid 1.5pc and Singapore sank 1.2pc. Markets in Japan, South Korea and Thailand were closed for holidays. Earlier, Wall Street's Dow Jones index fell 2pc, dropping beneath the critical 11,000 point mark to close at 10.927.

The falls were even sharper in Europe, where Madrid's key stock market index was down 5.4pc, Lisbon's down 4.2pc, Paris's CAC fell 3.6pc, London's FTSE 100 skidded 2.6pc and shares in Frankfurt gave up 2.6pc. The falls, which could continue today, more than reversed the rallies on Monday after the eurozone leaders and IMF confirmed their bail-out of the Greek economy. They are a sign, according to analysts, of more deep-seated concerns about peripheral eurozone economies.

Britain's role as a bridge between the United States and European Union has diminished and that trend will accelerate if the May 6 vote is inconclusive, with Washington looking more and more to the European Union as a whole as a global partner.

Opinion polls point to a hung parliament where no single party has a clear majority, the first since 1974. Post World War Two politics have been dominated almost without interruption by left-leaning Labour and right-leaning Conservatives.

While Britain and the United States remain close on issues such as intelligence, the war in Afghanistan, how to handle Iran, free trade and economic issues, experts say both countries appear to be altering overall expectations of their alliance. The term "special relationship" was coined in a 1946 speech by Winston Churchill to describe ties binding two countries that battled side by side to liberate Europe in World War Two. "There's a sense that the UK doesn't enjoy the pride of place it used to in Washington," said Charles Kupchan, international affairs professor at Georgetown University.

"The biggest concern in Washington would be that the UK ends up with a dysfunctional government. The general view from Washington is that the US needs a strong European partner, and that a strong European partner depends in part on a strong British government." Even leaving the election to one side, relations between the United States and Britain have lost some of their luster. Former Labour Prime Minister Tony Blair was scorned in Britain as President George W Bush's "lap dog" for sending British troops to fight in the US-led war in Iraq.

"Relations are rather 'unspecial' at the moment."

The opening of the World Expo in Shanghai last week is "not a particularly good omen," he said, citing a property bust and depression that followed the 1873 World Exhibition in Vienna. "The market is telling you that something is not quite right," Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong today. "The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months."

An index tracking Chinese stocks traded in Hong Kong dropped 1.8 percent today, the most in two weeks, after the central bank raised reserve requirements for the third time this year. The Shanghai Composite has slumped 12 percent this year, Asia's worst performer, as policymakers seek to rein in a lending boom that's spurred record gains in property prices. China's markets are shut for a holiday today.

Faber joins hedge fund manager Jim Chanos and Harvard University's Kenneth Rogoff in warning of a crash in China. China is "on a treadmill to hell" because it's hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country's gross domestic product relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade.

The government has banned loans for third homes and raised mortgage rates and down-payment requirements for second-home purchases. Prices rose 11.7 percent across 70 cities in March from a year earlier, the most since data began in 2005.

Faisal Shahzad, a naturalized US citizen born in Pakistan, was arrested late on Monday at John F Kennedy International Airport in New York after being removed from a plane as it was about to take off for Dubai, officials said. Shahzad, 30, was due to appear in federal court later on Tuesday to face charges of "driving a car bomb into Times Square on the evening of May 1," officials said. Had the bomb detonated, many people could have died, experts said.

"He's admitted to buying the truck, putting the devices together, putting them in the truck, leaving the truck there and leaving the scene," the law enforcement source told Reuters, speaking on condition of anonymity. "He's claimed to have acted alone. He did admit to all the charges, so to speak," the source said, adding that investigators were still looking into his activities during a recent trip to Pakistan.

President Barack Obama said the investigation would seek to determine if the suspect in custody had any connection with foreign extremist groups. If links were found between the failed bombing and Pakistan's Taliban, which claimed responsibility for it, Pakistan could come under renewed US pressure to open risky new fronts against Islamic militants.

Shahzad had boarded the Emirates airline flight for Dubai before being detained, the airline said. ABC News, citing unidentified federal officials, said the plane had begun to taxi for take-off when FBI agents ordered it to return to the gate.

Figures reveal that 29 'floating fortresses' have been sold to foreign navies keen to bolster their own defences, with the Government pocketing 580 million pounds from the deals. Opposition parties and naval commanders last night criticised the loss of so many vessels.

Surgeon Rear Admiral Ralph Curr, the UK National Defence Association's south-west president, said: 'The Navy has got down to a critical mass, the bare minimum.'

'You can't expect the Government to make more cuts and still expect the Navy to conduct the same number of operations at the same intensity.'

'The Navy's ships are like fire extinguishers: You never know when you are going to need them and it's too late to order them after a fire has started. If Britain is to play a proper part in the world, we can't afford not to build up our naval capacity.'

Tory defence spokesman Liam Fox said: 'Britain is a maritime nation and 92 per cent of our trade goes by sea, so an effective Navy should be a priority for the defence of the UK.' Parliamentary written answers revealed that ships have been sold to the Philippines, Canada, Greece, Trinidad and Tobago, Guyana, Bangladesh, Romania, Chile, Estonia and Brazil since 1997.

Last November, minesweepers HMS Cottesmore and HMS Dulverton were given to Lithuania for free. The Ministry of Defence refused to say why no money changed hands, insisting the arrangement was 'commercially sensitive'. The sales of HMS London and HMS Coventry to Romania are particularly controversial because it was revealed that of the 116 million pounds paid for the Type 22 frigates, the British taxpayer received only 200,000 pounds.

Sources close to Defence Secretary Bob Ainsworth said: 'Selling these ships is the best value for money and a good way of building diplomatic relationships with other nations, which is an invaluable tool in the defence of our nation.'

Christian groups have branded the move an attack by "aggressive atheists." The majority of councils currently opt to start meetings with a Christian prayer, while a handful open with prayers from other faiths. The NSS has hired Beachcroft, the leading legal firm, to launch the judicial review against Bideford Town Council, which has begun its meetings with prayers since the reign of Queen Elizabeth I.

The atheist group argues that the prayers breach Article 9 of the Human Rights Act, which guarantees freedom of thought, conscience and religion for non-believers. Keith Porteous Wood, executive director of the NSS, said: "If members of councils wish to pray before their meeting they can do it, preferably in another room. We've no problem with that. We're not infringing anyone's right to worship."

Andrea Williams, of the Christian Legal Centre, said: "Religious freedom should be respected. In a free and civilised society, councils and public bodies should be free to open meetings with prayer."

The Livestock and Veterinary Science Institute had raised 1,549 beef cattle and hogs for research and breeding. These were culled to contain the disease. The outbreak there was the 10th since April 9 and was close to Seosan and Yesan counties which have major cattle farms. Agriculture Minister Chang Tae-Pyong visited the institute Sunday and called for intensive efforts to contain the outbreak.

Foot-and-mouth disease affects cloven-hoofed animals including cows, sheep, goats and deer. It is rarely transmitted to humans but spreads easily between animals. Since the first outbreak was reported on an island west of Seoul, the disease has spread from there to North and South Chungcheong provinces. Quarantine officials helped by police and troops have culled some 49,000 animals. Foot-and-mouth outbreaks in 2000 and 2002 cost South Korea an estimated 450 billion won, including compensation.