Stock markets plunged on Thursday on worries about the health of the financial system and the economy as a whole.

The Dow Jones Industrial Average dropped 358 points or 3 percent to 11,453, the lowest level in nearly two years. The Wall Street Journal and Financial Times lead their front pages with the news, while The New York Times puts it on C1. Bloomberg says the 9.4 percent drop this month makes this the worst June since the Great Depression.

Shares in the financial sector&mdash led the declines and brought the Dow to the brink of an official bear market, which is when stocks fall 20 percent from their peak). The Dow is now off 19 percent from October and needs to fall 122 points to hit the bear mark, the Journal says. The NYT:

Downgrades in the financial industry and fear over the deteriorating health of the auto sector were the immediate causes of Thursday’s sell-off. But the abrupt reversal in the markets—only five weeks ago the Dow was flying above 13,000 —reflects the realization among investors that the troubles plaguing the economy may be worse than initially feared.

The WSJ raises an interesting comparison between the demise of the financial stocks and the popping of the tech bubble earlier this decade. Financials are off a whopping 50 percent from their highs, compared to the Nasdaq’s 60 percent plunge in the same amount of time in the tech bust.

The numbers—even after all these months—still shock: Lehman Brothers is down 74 percent. Citigroup is off 69 percent (that’s $180 billion in vanished value). Washington Mutual has lost 89 percent of its value. The Journal on C1 compares Wall Street analysts scrambling to downgrade each other’s banks to squabbling in a schoolyard.

But it wasn’t all financials getting hit. General Motors shares fell to their lowest level in fifty-three years, according to Reuters, the FT, and the Journal (thirty-four years, according to the NYT). Rumors, which were denied, spread that Chrysler is about to go broke. Weak reports from Nike and Oracle raised concerns about the health of consumers and businesses.

The NYT reports that credit markets are showing signs of more weakness. The cost of insuring against default has “widened greatly” recently. And the Journal’s Ahead of the Tape column says a volatility measure signals that the bottom hasn’t yet been reached.

Oil prices touched a record, hitting $140 a barrel after rising $5 on the day. The Journal posts a classic-style “leder” on A1 about two prominent Saudi oil officials’ dueling views on one of the big questions of our age: whether oil supplies have reached a peak.

Fixing a system in freefall

The Federal Reserve, in a bid to boost the financial system, said it would relax requirements on investing in banks by private-equity firms, the Journal reports on C1. The papers says such a move could “offer a lifeline to cash-strapped lenders desperate to secure capital,” but it appears that in so doing it would weaken oversight at a time when that’s especially unwise.

The gusher of capital needed to keep the banks afloat has shown signs of slowing recently because those who’ve invested, like the so-called sovereign-wealth funds, have lost their rear ends so far. So the Fed is scrambling to find somebody willing to salvage them.

Right now, any investor that owns 25 percent or more of a bank is subject to heavy regulation, the WSJ says. That’s due to federal law, but the paper says the Fed has “wiggle room” in interpreting the rules.

Still, as the paper points out, it’s far from certain that anyone wants to try to catch the falling knife by handing banks cash at a time like this. The paper notes in its Heard on the Street column that Merrill Lynch, for one, has hemmed itself in on how it can raise capital with concessions it made to previous investors.

The FT reports that the value of mergers and acquisitions in the first half of the year dropped by a third from a year ago. The NYT’s Floyd Norris takes an interesting look at one of the deals that fell apart.

Swiss cheeseballs

Massachusetts sued big Swiss bank UBS, saying it defrauded clients by selling them auction-rate securities, which it called as safe as cash, to get them off its own books, as the legal fallout from the credit bust grew, the Times reports on C1 and the Journal on C3.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.