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American stocks suffered a brutal slump within moments of the opening bell on Wall Street as a sell-off in Asian and European markets spread across the Atlantic.
The Dow Jones industrial average dropped by 450 points in the first 10 minutes of trading to reach 8242, although fears of a full-scale panic proved overblown.
In the run-up to the New York Stock Exchange's official opening, stock futures had fallen so far that "limit" rules came into force and trading had to be halted. The feverish pre-market atmosphere set in on the 79th anniversary of "black Thursday", the start of the 1929 stockmarket crash.
Shares pared their losses slightly after a drop of 6% in the Dow and a fall of 7% on the technology-dominated Nasdaq exchange.
"There's a lot of panic out there today," said Scott Fullman, director of derivatives investment strategy at WJB Capital Group in New York. "People have been saying that we're in a recession. This is the realisation."
Brokers blamed the sharp falls partly on forced selling by troubled hedge funds which are liquidating investments to meet withdrawals by alarmed clients.
"This must be forced selling, probably by hedge funds," Nick Sargen, chief investment officer at Fort Washington Investment Advisers, told Bloomberg News. "A rational investor, and I emphasize rational, wouldn't be selling now."
In a reminder of just how severe America's mortgage crisis has become, the government-sponsored homeloans empire Freddie Mac said the value of its portfolio had shrunk by 37.9% year on year to $736bn.
Oil companies plummeted on the falling price of crude, which dipped below $65 barrel despite a decision by the Opec consortium to reduce output. Exxon Mobil's shares fell by 5.6% while ConocoPhillips and Chevron suffered similar drops.
Gloom was deepened by conservative comments from Microsoft which trimmed its profit forecasts after the bell on Thursday to reflect the likelihood of a "deeper" recession. Microsoft's stock opened with a decline of 3.7%.
Rumours of imminent bankruptcy hit shares in America's biggest carmaker, General Motors, which was obliged to reiterate its stance that filing for protection from its creditors was "not an option".
In the media world, the New York Times' publishing company came under pressure as Standard & Poor's cut its credit rating by three levels to "junk" status.
On the floor of the New York Stock Exchange, some traders felt the sell-off was going too far. Peter Costa, managing director of Eckhart & Co, said: "This is the buying opportunity of a lifetime. It's something you can put away for your kids and for your kids' kids."
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