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WASHINGTON — On Day One, the $700 billion plan didn't help. Just the opposite.

The government's huge rescue package, aimed at rebuilding economic confidence in the U.S. and around the world, appeared to sound a global alarm instead on Monday, the first trading day after Congress approved the measure last Friday with fanfare and President Bush immediately signed it.

From Asia to Europe to Wall Street, there was a fearful international sell-off as administration officials began work on a plan that investors feared would be too little and too late to stave off a worldwide recession.

While markets around the world tumbled amid fast-spreading anxiety, officials in Washington worked quickly to put the new financial plan into effect and to shovel more money into the banking system.

The Treasury Department named a former Goldman Sachs executive, Neel Kashkari, now Treasury's assistant secretary for international affairs, to oversee the new program and said it would increase its bond sales to help pay for the huge package.

Trying to do its part, the Federal Reserve increased a short-term loan program to as much as $900 billion and announced it would begin paying interest on reserves that banks keep with it.

Bush sought to reassure panicking markets. "It's going to take a while to restore confidence in the financial system. But one thing people can be certain of is that the bill I signed is a big step toward solving this problem," he said in San Antonio.

Nobody seemed reassured. Chaos in the financial system seemed to be growing by the minute.

The Dow industrials plunged below the 10,000 level for the first time in four years, and at one point were down as much as 800 points before recovering to close with a loss of 370. All sectors — not just financial companies — were being sold off.

"People are panicked that their bank is going to go out of business. People have just lost a lot of trust in the financial system and in these large institutions," said Anil Kashyap, professor of economics and finance at the University of Chicago's Graduate School of Business. He suggested the crisis has morphed from a near shutdown in lending to a new, more dangerous phase in which financial and other companies face greater chances of insolvency.

The fear was reinforced by new problems among European banks and fresh worries in Asia of a spreading global recession that would harm the Continent's prized ability to export.

It all started with a U.S. housing boom, helped along by low interest rates and government encouragement for more homeownership. Too many home mortgages were written for too many people who couldn't afford them. Banks and other financial companies that made these home loans then resold them. Many were packaged into Wall Street securities and sold to investors. There was lax federal regulation over the process.

It worked as long as home prices were going up. But when they started to fall, the process began to collapse. Many people suddenly owed more on their homes than they were worth. Rising interest rates made it harder to meet monthly mortgage payments that were resetting to higher levels. Foreclosures increased. The infection spread as markets dried up for mortgages and mortgage-backed securities.

Now, many banks and financial institutions don't have enough money to cover their obligations as a result of the plunge in the value of these securities on their balance sheets. Many are hoarding what cash they have. That's what the bailout is supposed to help fix, with the government buying these hard-to-value assets and reselling them later in hopes of allowing banks to start lending again.

Some top economists seemed at a loss for ways to stop the downward spiral.

"I think what's needed is a global rate cut," said David Wyss, chief economist for Standard and Poors in New York. "But even that I don't think would solve the basic problem, which is that everybody's just scared of loaning money to anybody else."