New York  - Major US stock indices posted some of their worst losses in years on Monday in response to a significant deepening of the credit crisis and fears of widespread banking failures in the United States.

The blue-chip Dow Jones Industrial Average tumbled more than 500 points - some 4.4 per cent - and closed below 11,000 for its biggest one-day drop since the September 2001 terrorist attacks. The broader Standard & Poor's 500 Index plunged more than 4.7 per cent for its lowest close since October 2005.

The bankruptcy filing Monday morning of Lehman Brothers Holdings was at the centre of the day's dramatic sell-off as the fourth- largest US investment bank shed 94 per cent of its share price.

That was followed by a desperate search for fresh capital by American International Group, the largest US insurer. Reports said AIG was looking for 40 billion dollars in bridge loans from the Federal Reserve. Its shares dropped more than 60 per cent.

Bank of America Corp's emergency 50-billion-dollar takeover of financial services firm Merrill Lynch & Co also had little impact on the run on financial stocks. Bank of America's own shares were down more than 20 per cent on the day.

Negotiations throughout the weekend failed to produce a buyer for the 158-year-old Lehman Brothers firm after the US Treasury refused to put up taxpayer funds to facilitate a deal, leading to the largest bankruptcy filing in US history Monday morning.

The Dow fell 504.48 points, or 4.42 per cent, to 10,917.51. The S&P 500 was down 59 points, or 4.71 per cent, to 1,192.70. The technology-heavy Nasdaq Composite Index plunged 81.36 points, or 3.6 per cent, to 2,179.91.

The US currency fell to 70.13 euro cents from 70.30 euro cents on Friday. The dollar plunged against the Japanese currency to 104.86 yen from 107.94 yen on Friday. (dpa)