Global stocks have slumped amid fears over the fallout of the credit crisis, after Goldman Sachs downgraded Citibank and forecast US$15bn (£7.3bn) in losses.
US markets were particularly hard-hit.
The Dow Jones industrial average fell 217.86 points, or 1.65 per cent, to end at 12,958.93 - its lowest
level in three months. The Nasdaq shed 1.33 per cent.
London's FTSE lost 170.4 points at 6,120.8 - its biggest drop since the credit crisis peaked in August.
European stocks also fell more than 1 per cent in both France and Germany.
The benchmark Frankfurt Dax shed 1.3 per cent and the Paris Cac ended 1.7 per cent lower.
In Japan, the Nikkei average tumbled to a 16-month low today and the TOPIX to a two-year low, battered by the Wall Street slide.
The benchmark Nikkei ended morning trade at 14,756.67, down 1.9 per cent or 285.89 points. It earlier slid to 14,751.27, its lowest point since July 24, 2006.
Goldman Sachs recommended that investors in Citigroup sell their shares, prompting concerns that the impact from the credit crisis could be more dramatic than originally thought.
The negative outlook for banking giant Citigroup comes after the bank said it expected to see between US$8bn and US$11bn in writedowns in the fourth quarter.
Citigroup dropped 5.9 per cent by close of trade. Other finance firms to fall included Bank of America, down 3.5 per cent.
Worries about more losses to come were also stoked after reinsurance firm Swiss Re announced US$1.07bn Swiss francs in writedowns.
Meanwhile in the UK, Northern Rock was the biggest faller, down 21.4 per cent after the institution described bids for the firm as being "materially below" its share price.
Other finance firms to fall included Royal Bank of Scotland, down 5.3 per cent, while Alliance & Leicester dropped 4.2 per cent, BBC news reported.
Auto firms and airlines also saw their stocks decline, as fears over the slowing US housing sector fed into wider concerns about the state of the US economy.
GM saw its stock at its lowest for nearly 18 months, at US$26.57, and fell 8.5 per centv overall to end at US$26.79.
Delta Airlines dropped 4.8 per cent and Continental Airlines shed 6 per cent.
- AGENCIES
