Bush's tax plan to revive the world's largest economy disappointed investors.
"Investor scepticism over the impact of a temporary tax cut in saving the US economy from a sharp slowdown in economic growth prompted heavy selling" in equities, said Derek Halpenny of The Bank of Tokyo-Mitsubishi in London.
Tokyo's benchmark index closed down a hefty 3.86 percent, hitting the lowest point for more than two years, while in early European trade the London FTSE 100 dived 2.
22 percent.
Frankfurt declined 2.94 percent and the Paris market retreated 2.
49 percent and under 5,000 points for the first time since August 2006.
The foreign exchange market, however, reacted calmly and some dealers described the shares selloff as another short-lived, knee-jerk reaction.
Markets were reacting to Bush's plan announced last Friday for 140 billion dollars (97 billion euros) in temporary tax cuts and other measures.
Bush's package "is seen as too late and not strong enough to make an impact," said Najeeb Jarhom, head of research for retail clients at Fraser Securities in Sin