Stocks slumped, the dollar tumbled and oil prices gushed higher in response to the setbacks, a day after the coalition's worst day so far in the war, with an unspecified number of troops reported dead or missing Sunday, and several US soldiers, including a woman, held prisoner by Iraq.
Hammering further at coalition morale, Iraq said it had foiled an attempted British and US landing near the northern oil capital of Kirkuk and claimed scores of civilian casualties in air raids around the country.
Seeking to break Iraqi resistance and press on towards Baghdad, US forces responded by launching a fresh assault on the key southern city of Nasiriyah.
"This is the beginning," said a senior US military spokesman, who asked not to be named, as heavy bombardment of the city began.
Al-Jazeera television also reported bombardment of southern Basra, showing columns of smoke rising from the city.
In his second address to the nation since the launch of the war, a solemn uniformed Saddam pledged however that "victory is near".
"The more they advance into Iraqi territory, the more they head into a dead end," he said following reports that coalition forces were just 150 kilometres (90 miles) from Baghdad.
Reading slowly from a prepared text, Saddam offered sceptics evidence he had survived at least the early stages of the war to oust his regime by referring to ongoing battles with coalition forces in southern Umm Qasr.
But the Iraqi president is known to use look-alikes as decoys.
Commenting on the broadcast, British Defence Secretary Geoff Hoon said "analysis continues" of the speech, but that it was not live but pre-recorded, though it remained unclear when.
"Hit your enemy with force and precision," Saddam told his people. "Cut their throats. The enemy is stuck in Iraqi territory.
Hit it."
Coalition forces meanwhile maintained pressure on the regime with a relentless overnight battering of Baghdad that left five civilians dead, according to residents.
The government said 24 civilians had died and more than 400 had been hurt in air raids across the country Sunday.
Coalition forces hit another setback on confirming the loss of an Apache helicopter, star of the first Gulf war in 1991. Iraqi TV showed the downed aircraft, which carries a two-man crew, surrounded by civilians who chanted and waved weapons.
Dogged Iraqi resistance and sandstorms meanwhile slowed the advance of US-led forces on Baghdad, with both sides gearing for a major showdown at the Euphrates River city of Nasiriyah.
US infantry were camped about 160 kilometres (100 miles) south of the capital near the Shiite Muslim pilgrimage center of Najaf, flanked on the east by US Marines.
But the main stumbling block was Nasiriyah, a key river crossing which saw the heaviest fighting Sunday as the Marines tried to move past toward Baghdad.
On Monday, 4,000-5,000 US and British troops were preparing for an all-out blitz in Nasiriyah after another round of heaving fighting overnight.
The senior US military spokesman said the coalition would throw all the up to 5,000 troops into battle for Nasiriyah, located 180 kilometers (112 miles) north of the Kuwaiti border On Sunday, the Pentagon said around 10 US soldiers had been taken prisoner, and Iraq said the troops had been killed in fierce fighting in Nasiriyah, where it claimed 25 US and British soldiers were dead.
In the war of images Sunday, five frightened-looking US soldiers, including one woman, were paraded before Iraqi television cameras, a display aimed at humiliating Washington and rallying support for Saddam in the Arab world.
Al-Jazeera television on Sunday also broadcast bodies of what looked like dead US soldiers -- images kept off the screens of US viewers.
Blood-drenched corpses lay stretched in a makeshift morgue, the body of one resting in a pool of blood. Others appeared shot in the head.
On Monday in Baghdad, Information Minister Mohammad Said al-Sahhaf said Iraq had taken more US or British prisoners of war than the five previously shown.
While continuing to bomb Baghdad, US forces staged their first air strike on Iraqi frontlines between the Kurdish-held northern town of Chamchamal and the key city of Kirkuk, an AFP correspondent reported.
Elsewhere, anti-war protests raged unabated and the war took a front seat at the annual Oscars ceremony in Hollywood, with the likes of US filmmaker Michael Moore and Best Actor Adrien Brody lashing out against the conflict.
Across Europe, press commentators stressed that greater-than-expected Iraqi resistance had soured hopes of a quick resolution to the war.
"This is not a walk in the desert," the German mass-selling Bild daily said in a comment.
There were no immediate confirmed figures of the dead or captured on the US-British side, but Washington acknowledged having endured its toughest day yet in combat.
"There have to be tough days ahead," US Defence Secretary Donald Rumsfeld said. "Wars are unpredictable. There are still a large number of difficulties and things that could go wrong that are still ahead of us." Britain said none of its troops had been taken prisoner in Iraq but that two British airmen in a Royal Air Force Tornado were killed by friendly fire from a US Patriot missile near the Kuwaiti border with Iraq.
The incident Sunday came a day after two air accidents that claimed 14 British lives.
US President George W. Bush vowed that anyone who did not treat POWs under the Geneva conventions would be later dealt with as war criminals.
"If there is somebody captured, and it looks like there may be, I expect those people to be treated humanely," he said Sunday. "If not, the people who mistreat the prisoners will be treated as war criminals."
The International Committee for the Red Cross said the broadcast of the soldiers was a violation of the international rules of war and Iraq said it would respect the conventions.
Rumsfeld said the United States had about 2,000 Iraqi prisoners, all of whom were being treated in accordance with international law.
In other developments, Syria's official SANA news agency said five Syrians were killed and another 10 hurt when a US missile struck a bus in Rutba, western Iraq, as it was returning to neighbouring Syria on Sunday morning.
The Pentagon meanwhile played down reports of allied forces having discovered a "huge" chemical weapons factory at An Najaf in central Iraq, saying they were "premature".
In Moscow, the government denied it had sold arms and weapons systems to Iraq, rebuffing US accusations that Russian companies had supplied Baghdad with anti-tank missiles and satellite jamming devices - Sapa-AFP
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