Stocks and the US dollar tumbled on Monday as Lehman Brothers was expected to file for bankruptcy, leading to grave uncertainties about other banks and shaken confidence in the financial system, and sending safe-haven Treasury debt and gold prices soaring.

The US dollar dropped 2.4 percent against the yen at 105.29 yen on track for the largest daily decline since March 2002. The dollar was off 2 percent against the Swiss franc to 1.1075 francs. The euro rose by more than a cent against the dollar to $1.4460, up 1.6 percent from late Friday in New York.

In the spot market, gold rose 2.7 percent to $783.95 an ounce.

US stock market futures were down more than 3 percent, pointing to sharply lower open, while major European markets were set for falls of between 2 and 3.2 percent, according to one financial spread-betting firm.

The dollar plunged 2 percent against the yen, on track for its biggest daily fall in more than six years, as US investment bank Lehman Brothers looked set on a path to bankruptcy in a massive blow to investors' willingness to take risks.

While a lack of confidence was sucking down Lehman, a lack of short-term funding was hurting one of the world's largest insurers American International Group Inc. The firm was asking the Federal Reserve for a bridge loan of $40 billion, according to the New York Times, an unprecedented move that further battered the dollar and knocked down 2-year US government debt yields to a five-month low.

Stock markets in Australia, Singapore, India and Taiwan all dropped 3 to 5 percent as investors tried to slice off any trace of risk in their portfolios, loading up on investment-grade debt as consolidation in the financial sector sent shockwaves through almost all asset classes.

Holidays in most major Asian markets kept volume thin though price action belied a desire to seek safety first and ask questions later.

"The exact ramifications of the liquidation process and the unwinding of positions pertaining to the Lehman situation remain unclear. Hence, over the next 48 hours at least, financial markets are likely to be volatile and tense," said economists with United Overseas Bank in Singapore in a note.

The Swiss franc and yen, currencies associated with stability in times of duress, strengthened, especially against the dollar, which reeled as some in the market speculated the Federal Reserve may have to cut interest rates on Tuesday to shore up the economy from financial fallout.

The Fed on Monday said it would begin accepting equities as collateral for emergency loans for the first time and would as it tried to ease the spiralling crisis.

The steps would likely help surviving financial institutions to find cash but may not do much to boost global confidence in the US financial system.

"The mere fact that they are forced to do this and they may still do some more indicates the breadth and depth of the trouble that the system is in," said V Anantha Nageswaran, head of investment research, Asia-Pacific with Bank Julius Baer in Singapore.-Reuters