Fear swept across the financial markets Monday, sending the Dow Jones industrials down as much as 705 points, after the government’s financial bailout package failed to survive a vote in the House.

As the vote was shown on TV, stocks plunged and investors fled to the safety of the credit markets, worrying that the financial system would now keep sinking under the weight of failed mortgage debt.

‘‘Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that,’’ said Chris Johnson president of Johnson Research Group. ‘‘This isn’t a market for the timid.’’

While investors had some worries that the vote would be close, many on Wall Street appeared to believe it would ultimately pass. The proposal wasn’t been seen on the Street as a panacea for the deepening problems in the financial sector that have led to the failure of Lehman Brothers Holdings Inc. and Washington Mutual Inc. and the forced sale of Merrill Lynch & Co. and Wachovia Corp. — and that still pose a threat to many other banks.

The markets turned highly volatile as it became clear the measure wouldn’t find the necessary support. The Dow regained ground then fell back again, trading down 524.88, or 4.71 percent, to 10,618.25. At its low, it was down 705.06, not far from its previous record for an intraday drop, 721.56, set during the first trading day after the Sept. 11, 2001, terror attacks. Still, in percentage terms, the decline remained well below the more than 20 percent drops seen on Black Monday of October 1987 and the Depression.

Broader stock indicators also tumbled. The Standard & Poor’s 500 index declined 74.52, or 6.14 percent, to 1,138.75, and the Nasdaq composite index fell 139.00, or 6.37 percent, to 2,204.34.

The Federal Reserve declined to comment on the market’s decline.

With Wall Street in turmoil, the yield on the 3-month Treasury bill fell to 0.32 percent from 0.87 percent on Friday. That showed that investors were prepared to get meager returns on an investment as long as it was secure. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.69 percent from 3.84 percent late Thursday.

Investors also faced other worries about the banking system. Wachovia became the latest big bank to be rescued from its overwhelming bad mortgage debt, agreeing to a Federal Deposit Insurance Corp.-brokered buyout of its banking operations by Citigroup Inc.

Marc Pado, U.S. market strategist at Cantor Fitzgerald, said investors are worried about the spread of troubles beyond banks in the U.S. to Europe and other markets.

‘‘Things are dying and breaking apart while they sit there and vote on this thing,’’ he said.

The dollar fell against other major currencies, while gold prices rose.

Light, sweet crude fell $11.39 to $95.50 on the New York Mercantile Exchange as investors feared that a worsening economy would slice into energy demand. If the decline held, it would be oil’s largest ever one-day drop.

Marc Pado, U.S. market strategist at Cantor Fitzgerald, said investors are worried about the spread of troubles beyond banks in the U.S. to Europe and other markets.

‘‘Things are dying and breaking apart while they sit there and vote on this thing,’’ he said.

Lawmakers voted down a plan that was different than what the Bush administration had originally proposed. There were restrictions allowing Congress to limit how much of the money goes out the door at once. It also included caps on pay packages of top executives as well as assurances that the government also would ultimately be reimbursed by the companies for any losses. The Treasury would have been permitted to spend $250 billion to buy banks’ risky assets, giving them a much-needed necessary cash infusion. There also would be another $100 billion for use at president’s discretion and a final $350 billion if Congress signs off on it.

Wall Street found further reason for worry overseas. Three European governments agreed to inject Fortis NV with a $16.4 billion bailout. Fortis, with has headquarters in Brussels, Belgium and Utrecht, Netherlands, is Belgium’s largest retail bank.

The British government, meanwhile, said it is nationalizing mortgage lender Bradford & Bingley, which has a $91 billion mortgage and loan portfolio. It was the latest sign that the credit crisis has spread beyond the U.S.

Japan’s Nikkei stock average fell 1.26 percent. Britain’s FTSE 100 fell 5.30 percent, Germany’s DAX index fell 4.23 percent, and France’s CAC-40 fell 5.04 percent.

Citigroup’s acquisition will include five depository institutions and the assumption of debt. The FDIC said Citigroup will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC said it would cover any additional losses. The FDIC gets $12 billion in preferred stock and warrants under the deal. Citi fell 44 cents, or 2.2 percent, to $19.71.

Meanwhile, consumer spending fell in August to its lowest level in six months. The Commerce Department said spending remained unchanged rather than increasing 0.2 percent as economists had expected. It was the worst showing since February.

Personal incomes rose a better-than-expected 0.5 percent after falling 0.6 percent drop in July. But after-tax incomes fell by 0.9 percent. Incomes benefited in past months from the government’s stimulus checks.

The Russell 2000 index of smaller companies fell 34.77, or 4.9 percent, to 670.02.

Wall Street is also worried about overall sluggishness in the world’s economy. In the U.S., for example, unemployment now sits at a five-year high of 6.1 percent. That rate is expected to increase, perhaps putting further pressure on consumer spending, which accounts for more than two-thirds of the nation’s economic activity.