Global financial leaders struggled Thursday to calm financial markets, which plunged over renewed fears that the United States and the global economy were headed for recession.
Investors are worried that Europe's debt crisis could destabilize the global economy. The United States is limping along with slow growth, 14 million unemployed and millions stuck with homes worth less than what is owed on the mortgage.
The Dow Jones industrial average sank 391 points for the day. The second-straight day of massive losses on Wall Street coincided with the start of the annual meeting for the 187-nation International Monetary Fund and its sister lending institution, the World Bank.
"The current economic situation is entering a dangerous phase, said Christine Lagarde, the head of the IMF. "This heavy debt of sovereigns, households and banks (represents) risks that could actually suffocate the recovery."
Some leaders at the conference seem to be losing faith in the economy, just as investors are.
"I still think a double-dip recession for the world's major economies is unlikely, but my confidence in that belief is being eroded daily," said World Bank President Robert Zoellick.
On Wednesday, stocks had tumbled after the Federal Reserve expressed new concerns about the U.S. economy and the growing risks in Europe. The Fed also announced a plan to try to lower long-term interest rates further by shuffling the makeup of its portfolio.
Still, many investors and economists fear the Federal Reserve can't do much to help. Some Republican lawmakers think Fed is making matters worse.
Congress and the White House can't agree on policies to help the unemployed or on plans to whittle down trillion-dollar deficits.
"We are faced with a weakening economic outlook and policymakers are becoming impotent," said Paul Dales, an economist at Capital Economics.
The gathering of world finance leaders comes at a perilous time in Europe.
Greece could default on its debt next month unless it receives a $10.9 billion installment from a bailout fund managed by the European Central Bank, the European Commission and the IMF.
A default could destabilize other financially troubled European countries, such as Portugal, Ireland, Spain and Italy. It would also deal a blow to many European banks, which are large holders of Greek government bonds.
Lagarde offered some direction to stem the crisis. Banks in Europe must provide more capital so they can withstand potential losses. Governments need credible plans to get their debt under control.
But some governments lacked the political will to shrink rising deficits, Lagarde said, an apparent shot at lawmakers in the United States.
"What is needed and what certainly we hope to generate ... is the political leadership, and the degree of synchronization that needs to happen for that path to recovery to be made possible," Lagarde said.
Brazil, India and China and other emerging economies favor efforts by President Barack Obama to tackle the U.S. budget deficit. And they want the 17 countries that use the euro currency to address the debt crisis in their region.
The group said in its statement that it would "consider, if necessary, providing support through the IMF or other international financial institutions" to address the European debt crisis.
Finance officials from the group played down reports that they might purchase government debt of troubled European countries. At a news conference, they said it would be politically difficult to sell such a move to voters in their home countries, many whom have far lower standards of living than European countries.
Still, Brazilian Finance Minister Guido Mantega said the emerging nations understand the crisis must be contained.
"We are living through a worsening of the crisis in recent months and we have to prevent the crisis from making a qualitative jump, reaching a more serious level," Mantega said.
Treasury Secretary Timothy Geithner said Thursday that the United States has a huge stake in seeing Europe succeed. He said European governments would "act with more force" to resolve its debt crisis in the coming weeks.
He also said that the IMF had adequate resources to help in the European debt crisis. The IMF is already providing support to a bailout package for Greece.
Olli Rehn, the European Union's top economic official, said the 16 other euro zone countries won't abandon Greece and allow it to default on its massive debts.
"An uncontrolled default or exit of Greece from the euro zone would cause enormous economic and social damage, not only to Greece but to the European Union" and the rest of the world, Rehn said.
The U.S. economy appears to be slightly more stable than Europe. Still, more than two years after the recession officially ended, it is barely growing. Consumer and business confidence is low. In August, employers added no net jobs, and consumers didn't increase their spending on retail goods.
On Wednesday, the Fed said it will try to push long-term interest rates lower and make consumer and business loans cheaper by shifting $400 billion out of short-term Treasury securities and into longer-term bonds. Economists, however, doubt the plan will do much.
President Barack Obama has proposed a $447 billion job-creation package. But the president's lacks support in Congress. Republicans strongly oppose his proposal to pay for it with higher taxes on wealthier households, hedge fund managers and oil companies.
Associated Press writers Gabriele Steinhauser, Luis Alonso Lugo and Christopher S. Rugaber in Washington contributed to this report.