Global Markets See Big Selloff; Asia Tumbles
Japan's Nikkei225 Average closed down 4.1 percent Tuesday, hitting its lowest level this year, following the Dow Jones Industrial Average's 7 percent plunge. Australia's S&P/ASX 200 Index shed 4.3 percent.

US stock futures were pointing to a lower open on Tuesday as well. (Click here to check the latest US stock futures here)

"Short term, the market is getting crushed. But more importantly, we are telling clients we could be at the beginning of a whole new down phase," said Bill Strazzullo, partner and chief market strategist at Bell Curve Trading in Boston.

He said the benchmark S&P 500 falling to the 1,000 level was not out of the question.

"We have to see what happens here," Strazzullo said. "It is totally uncharted. I think it is very difficult to gauge. It's not trying to predict an economic event. It's a political event and you never know what is going on behind the scenes."

Though Republicans and Democrats vowed to renegotiate a revised bailout proposal, it was unclear whether any plan would be able to pass Congress now.

Analysts said the freezing of credit marketsand signs that more and more banks are now succumbing to the strains stemming from the U.S. housing slump probably will fuel more volatility.

U.S. short-term interest rate futures surged higher on Monday, sharply increasing the implied chances for a big Federal Reserve rate cut in October due to worries about the economy and the financial system.