Investors reeled under the triple whammy of the failure of Lehman Brothers, the shock sale of Merrill Lynch, and the disclosure that AIG, the world's largest insurance firm, might need to raise as much as $40 billion for survival.

The news sent shock waves across the world's stock exchanges, sending shares tumbling. US Treasuries, however, surged after investors sought shelter in the safety of government debt.

The volatile US market prompted Alan Greenspan, former head of the US Federal Reserve, to say on Sunday that the credit crisis in the country is "once-in-a-century" financial crisis that is likely to claim more big firms before it eases.

Greenspan told ABC's This Week that the situation "is in the process of outstripping anything I've seen, and it still is not resolved and it still has a way to go".

US President George W. Bush differed, saying Monday that the US economy was healthy enough to withstand "the adjustments that are taking place" in the financial markets. But he conceded that Americans "are concerned about the adjustments that are taking place in our financial markets".

Lehman, a 158-year-old investment bank, choked by the credit crisis and falling real estate values, filed for Chapter 11 bankruptcy protection from its creditors, and said it was trying to sell off key business units.

Early yesterday, the Bank of America Corp (BOA) said it would acquire Merrill Lynch lock, stock and barrel for about $50 billion. The BOA hopes the deal to lift the uncertainty over Merrill since the start of the credit crisis over a year ago.

The demise of the independent Wall Street institutions came as shock waves from the 14-month-old credit crisis roiled the US financial system six months after the collapse of Bear Stearns.

Lehman's last hope of surviving outside court protection faded on Sunday after British bank Barclays PLC withdrew its bid to buy it. The bank fell under the weight of $60 billion in soured real estate holdings and a tighter credit market that forced it to seek court protection.

There was some comforting news for sick firms, however. A global consortium of banks, working with government officials in New York, announced a $70-billion pool of funds to lend to troubled financial companies. The aim of the bank consortium, participants said, was to prevent a worldwide panic in stock and other financial exchanges.

Ten banks - the BOA, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and the UBS - agreed to provide $7 billion each "to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets".

Many Lehman employees seen entering its headquarters in Midtown Manhattan tucked their chins down to avoid talking to the media. Some carried empty shopping, tote bags or gym bags in to the office. Some walked in with ties undone or wore more casual shirts than they might have otherwise.

Filing for Chapter 11 protection allows a company to restructure while creditor claims are held at bay.