Stocks around the world plunged on Monday, racking up their biggest losses in almost three years as investors fled to the safety of gold and bonds after the downgrade of the U.S. credit rating. Wall Street ended down more than six per cent while European stocks hit a two-year low as investors saw no solution to the twin debt crises on both sides of the Atlantic. In Toronto, the S&P/TSX composite index had fallen 491.75 points, or 4.04 per cent to 11,670.42 as the close approached. The Canadian dollar was down 1.26 cents US in lateafternoon trading, to $1.0098 US. A favoured gauge of investor anxiety spiked to its biggest one-day gain since February 2007, a sign investors are afraid of more declines to come. The CBOE Volatility Index surged 50 per cent to end at 48. The selling came in heavy trading, with volume of 17.5 billion shares on the New York Stock Exchange, NYSE Amex and Nasdaq, second only to the day after last year's "flash crash." Ironically, investors took shelter in the one asset that was directly affected by the downgrade - U.S. government bonds. Benchmark 10-year Treasury notes, held widely for their perceived high quality, rallied, the yield dropping to 2.32 per cent. Investors struggled to discern the effects of the Standard & Poor's credit rating downgrade to AA-plus from AAA. "It is a panic, and almost by definition it doesn't have an issue. It wouldn't matter what it was," said James Paulsen, chief investment strategist at Wells Capital Management, with over $340 billion in assets under management. The downgrade - and threats of subsequent moves by S&P or other rating agencies - adds to concern about the credibility of the United States as the leader in the global economy, as well as the dollar's position as the world's reserve currency. Central to S&P's argument was that political paralysis in Washington has reached a point where the government would be unable to deal with worsening deficits and sagging economic growth. This burdens a stock market already skittish after last week's outbreak of fear. "In many ways this is not about the downgrade. I think it's about the underlying fundamentals and issues that are embodied in the downgrade itself," said Jonathan Golub, chief U.S. equity strategist at UBS in New York. This was underlined when selling accelerated during comments from U.S. President Barack Obama, after he blamed the downgrade on political gridlock in Washington. He said he would offer more recommendations on how to reduce federal deficits, but detailed no new proposals. Monday's global stock market sell-off wiped out more than $1.35 trillion in investor wealth worldwide, according to the 5.2 per cent drop in the MSCI World Index. The index entered the week with a value of $26.42 trillion. The Dow Jones industrial average dropped 634.76 points, or 5.55 per cent, to 10,809.85. The Standard & Poor's 500 Index slumped 79.92 points, or 6.66 per cent, to 1,119.46. The Nasdaq Composite Index skidded 174.72 points, or 6.90 per cent, to 2,357.69. The S&P 500 lost $729.3 billion in value with its drop of 6.66 per cent, the biggest since December 2008. Investors looking for a place to park their money pushed into gold, U.S. Treasuries and some safe-haven currencies. Gold ran up to a record high above $1,700 an ounce. Benchmark 10-year notes at one point soared over two points in price, with yields falling as low as 2.33 per cent, the lowest level since February 2009. The euro slumped to a record low of 1.0640 Swiss francs and last traded down 2.3 per cent at 1.07220.

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