US stocks suffered their biggest one-day decline on Monday since the market reopened after the terrorist attacks of September 11, 2001, as investors sought the safety of cash and government debt following the historic collapse of Lehman Brothers and the emergency sale of Merrill Lynch to Bank of America.

The unprecedented changes on Wall Street - which was also gripped by rising fears about the health of AIG, the giant insurer - left investors more concerned with preserving their capital than in generating returns. Yields on short-dated government debt collapsed, falling far below 1 per cent, amid frenzied buying.