Investor fear that pressured stocks also spilled into bond markets, breaking months of calm, as investors sold down a spectrum of corporate, emerging-market and other debt and flocked instead to the safety of Treasury bonds.

That drove up Treasurys prices, pushing down the yield on the benchmark 10-year Treasury note by 0.12 percentage point to 4.51%, a level last seen in mid-December.

As Treasurys rose, junk-bond prices tumbled, sending their yields higher. The gap between average yields on junk bonds and Treasury bonds increased by 0.2 percentage point to around 2.78 percentage points, as buyers demanded higher returns to take on the risk of holding these assets. Prices on investment-grade bonds also dropped, sending their yields higher, and the cost of insuring all sorts of corporate debt rose in the credit-default swap market.

"We're seeing a wave of risk aversion hitting the markets in a very broad way," said Laura Ostrander, a bond-fund manager at Columbia Management in Boston.

A confluence of events appeared to trigger the move, including a 9% plunge in stock prices in Shanghai, which set off fears of turmoil in emerging markets.

Mounting problems in the U.S. subprime-mortgage industry were another factor. Subprime mortgages are offered to the least credit-worthy homeowners. An index called the ABX, which is derived from bonds backed by these mortgages, has tumbled more than 30% in the past few weeks, suggesting subprime-mortgage bonds could drop in value in the coming months because of rising defaults in the pools of loans backing them.

Until yesterday, credit-market turmoil was largely confined to the subprime market. But that might also be changing.

As mortgage lenders run into trouble with their subprime loans, many are tightening lending standards for weaker borrowers. That may curtail the spending of some consumers and affect the economy in the longer run. And if stock markets locally and overseas continue to fall, investors may stop pouring money into riskier assets or demand significantly higher returns for them.

A counter to the risk aversion, on the other hand, could come from central banks. If market turmoil continues, the Federal Reserve and other central banks could be expected to come to the rescue by pushing short-term interest rates lower.

The Fed-fund futures market signaled just that, pricing in a high likelihood that U.S. central bankers would slash the overnight funds rate to 4.75% this year, down from its current 5.25% level.

In recent weeks, the market had been predicting the Federal Reserve would cut its fund rate by a quarter point in late 2007 or early 2008. Now the futures investors are pricing in a roughly 75% chance of a quarter-point cut in June and another quarter-point cut in October.

"We haven't seen the market rethink its outlook for Fed policy this dramatically since Hurricane Katrina in September of 2005," said Jim Bianco of Bianco Research.