The Federal Reserve reached deeper into its bag of tricks Tuesday to slow the financial crisis. Wall Street was not amused.

Video: Bush: Action Needed | Video: Bernanke On Consumer Spending | Save Money

Frantically trying to thaw frozen lending and get the economy moving again, the Fed for the first time said it would lend directly to businesses that aren't banks and hinted that it could slash interest rates soon.

Stocks continued their free fall anyway. The Dow Jones industrial average plunged more than 500 points, to its lowest level in more than five years, and the Standard & Poor's 500 fell below 1,000 for the first time since 2003.

Investors remain worried that the financial contagion has spread around the world so far, so fast, that not even the mighty Fed can't stop it.

In a speech to the National Association for Business Economics, Fed Chairman Ben Bernanke delivered a strong signal interest rates may need to be cut. And he warned the country could be stuck in the economic doldrums for some time.

"The outlook for economic growth has worsened," Bernanke said. "The heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance."

The gloomy assessment appeared to open the door wider to an interest rate cut on or before the Fed convenes again Oct. 28. The Fed's key interest rate now stands at 2 percent.

Wall Street turned its back. The Dow Jones industrials lost 508 points, more than 5 percent, to close at 9,447, the lowest since Sept. 30, 2003. The Standard & Poor's 500, a broader stock index, closed below 1,000 for the first time since that same day.

President Bush again sought to strike a reassuring tone and said the nation would make it through an economy blighted by job losses, record foreclosures and shriveled retirement savings. Congress' top budget analyst estimated Tuesday that Americans' retirement plans have lost as much as $2 trillion in 15 months.

"Have faith, this economy is going to recover over time," the president said in a speech in Virginia. "I wish I could snap my fingers and make what happened stop. But that's not the way it works."

Bush reached out to European leaders earlier Tuesday to urge coordination on efforts to solve the crisis. The White House said Bush was open to the idea of a summit.

The financial crisis has spread overseas. EU finance ministers held an emergency meeting Tuesday in Luxembourg to debate raising guarantees for private savings across the bloc.

Germany pledged to guarantee all private bank savings and CDs in the country, and Iceland and Denmark followed suit. Ireland went even further by also guaranteeing Irish banks' debts. Iceland's prime minister went as far as saying his country is facing the prospect of bankruptcy.

Britain's chief financial regulator was readying a statement to make before markets opened Wednesday, and the BBC reported that the British government was poised to announce a rescue package for the banking system there.

Concerns are mounting that a global recession is developing, and pressure is growing on the U.S. government to do something beyond the $700 billion financial bailout package that Bush signed into law Friday.

To that end, the Fed announced it would begin buying companies' short-term debt -- the first time it has used the Depression-era power outside the financial system.

The government's $700 billion bailout package was aimed at thawing lending by buying bad mortgage-related debt off the books of troubled financial institutions. The idea is that the banks would then be in a better position to lend and get the economy moving.

Commercial paper borrowing usually ranges from overnight to less than a week. But in the current climate of mistrust, the market has dried up considerably.

The action makes the Fed a crucial source of credit for nonfinancial businesses in addition to commercial banks and investment firms - and also exposes it to risk because so much of the debt would not be backed by collateral.

Credit markets, clenched up for weeks now, relaxed somewhat after the Fed's move.

The Fed said it was creating a new entity to buy two types of short-term debt, known as three-month unsecured and asset-backed commercial paper, directly from eligible companies. It hopes to have the program up and running soon, Fed officials said.

Fed officials said they would buy as much of the debt as necessary to get the market functioning again but refused to say how much that might be. They noted that around $1.3 trillion worth of commercial paper would qualify.

The Treasury Department, which worked with the Fed on the program, said the action was "necessary to prevent substantial disruptions to the financial markets and the economy."

The Treasury will provide money to the Federal Reserve Bank of New York to support the new program, the Fed said. The money would be separate from the $700 billion financial bailout package.

The Fed said it planned to stop buying the short-term debt on April 30 but may extend the program.

There was $1.6 trillion in outstanding commercial paper, seasonally adjusted, on the market as of last week, the most recent data from the Fed. The market has shrunk from $2.2 trillion last summer.