By Daniel Trotta

Shares of Morgan Stanley and Goldman Sachs tumbled after credit ratings service Moody's said it might cut their ratings, reviving concerns about the viability of their banking models.

Chaos awaited finance ministers and central bankers from the Group of Seven as they gathered to Washington to contemplate a next step after joint interest-rate cuts, individual liquidity injections, a $700 billion U.S. bailout and government plans to take equity stakes in banks failed to restore investor confidence.

After Wall Street opened with an 8 percent nose-dive, President George W. Bush warned how "anxiety can feed anxiety" and implored Americans to remain confident, promising the United States would restore stability as people watched huge chunks of their retirements savings vanish in the sell-off.

"We know what the problems are. We have the tools to fix them. And we're working swiftly to do so," Bush said.

Much of the debate surrounded injecting capital into banks to keep them from failing.

A Treasury Department spokeswoman said Washington was reviewing British Prime Minister Gordon Brown's proposal that other governments follow Britain in putting money into struggling banks and offering multibillion-dollar guarantees to persuade them to start lending to each other.

In addition G7 officials were discussing common principles on bank rescues and whether a joint statement should be issued declaring that no bank of systemic importance would be allowed to fail.

"This is a systemic crisis and we need a systemic way to handle it. The G7 needs to find an unified approach to handle the crisis. Banks need to be recapitalized," Canadian Finance Minister Jim Flaherty told reporters.

DOW TAKES A DIVE

The Dow Jones industrials lost nearly 700 points in the opening minutes of trading, turned positive, then resumed their slide.

The Dow was down 5 percent, the S&P 500 5.9 percent and the Nasdaq 4.8 percent in early afternoon trade after European stocks fell 7.6 percent and Japan's Nikkei sank 9.6 percent.

Morgan Stanley and Goldman Sachs led the plummet, down nearly 40 and 19 percent, with Morgan Stanley investors worried that Japan's Mitsubishi UFJ Financial Group Inc might back out of a deal to inject much-needed capital.

"The fear is mainly due to the fact that this happened once before (with Lehman Brothers) and could happen again -- a bank went down, and others could too," said Marino Marin, managing director and banker at Gruppo, Levey & Co. "This overall environment isn't helping. The government has announced plans but hasn't actually done anything."

Commodity markets fell in tandem with equities.

WEALTH WIPED OUT

Wall Street's tumble was part of a global evisceration of wealth that has affected investment bankers and retirees alike. Going into the trading day, stocks on the benchmark MSCI main worldwide index had lost $14.3 trillion of value since October 31, 2007, leaving the global equity benchmark worth less than $20 trillion for the first time in four years.

The MSCI has lost nearly $4.6 trillion in value in the previous seven days alone.

Bourses in Iceland, Russia, Austria, Indonesia, Romania and Ukraine all closed as a result of the share price falls. Peru closed it stock market indefinitely.

In one glimmer of hope, there were signs of a thaw in the credit markets, which Bush identified as a fundamental cause of the distress.

Many investors have been looking for global leadership, but Bush is a lame duck ahead of the November 4 presidential election. Democratic nominee Barack Obama said the crisis required coordinated international action and Republican John McCain argued his experience made him the candidate who can lead Americans through a time of economic tumult.

(Additional reporting by Reuters bureaus around the world; Editing by Brian Moss and Steve Orlofsky)