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Among the worst affected stocks were the London Stock Exchange, insurer Old Mutual and mortgage lender HBOS.
London stocks and shares slid 5.3 per cent - one of the largest one-day falls in the history of the FTSE 100.
Meanwhile, the recent record-breaking one-day rally by blue-chip shares was completely wiped out.
Stocks all over the world were also affected with turmoil in New York followed by drastic falls in Asia. Japan's benchmark Nikkei 225 Index fell almost 580 points and Hong Kong's Hang Seng index of shares fell by 5.47 per cent.
Members of the Republican Party were mainly responsible for the failure of the bailout bill.
Democrat representative Sam Farr of Monterey told the San Francisco Chronicle that Republicans "just walked away from their leaders and threw McCain under the bus".
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