Fears of an economic slump to rival the recession of the early 1990s wiped almost £50bn off the value of Britain's top 100 companies and sent stockmarkets around the world into a tailspin.
The wave of panic selling in the City followed warnings that the Tiger economies of the far east, which have so far escaped the worst of the global financial crisis, would also see a sharp slowdown in growth.
Major continental exchanges plunged by as much as 9% while, in the US, the Dow industrial index slumped more than 3% as traders digested a week of dire warnings, including an unusually frank admission of impending recession from the Bank of England governor, Mervyn King.
Banks again led the downward trend led by HSBC and Standard Chartered, both with extensive operations in Asia. But all leading shares lost value with little sign of the situation stabilising over the next few weeks.
In Japan, Sony warned that demand for consumer electronics was down and its analysis was echoed by Korea's Samsung. Profit warnings from the two firms worked to drag down the value of rival electronics groups Philips and US stock market darling Apple along with UK retailer Currys, which lost 15% of its value.
In Paris, Air France warned of lower profits, sending its shares on the Paris exchange down by almost 10%.
Data from the Office for National Statistics showing that national income shrank for the first time in 16 years by 0.5% between July and September was blamed for much of the stockmarket decline.
Britain was the first of the seven most-developed industrialised nations to publish economic data for the period and some economists said they expected the other nations to also report similar declines in economic output.
"This is going to be a long-drawn-out downturn of about five quarters of negative growth and there will be very few major economies that will escape recession," said James Knightley, an economist at ING Financial Markets in London.
"With asset values falling, real incomes down and corporate profits declining we can see a real drop in investments and the government is in no position to help."
The figures confirmed comments earlier this week by the prime minister, Gordon Brown, that a recession was likely. The National Institute of Economic and Social Research said on Wednesday that Britain's economy would suffer more than other major industrialised countries because of a combination of rising household and public debt, a sharp fall in consumer spending and decline in house prices.
Richard Hunter of stockbroker Hargreaves Lansdown said bank shares would continue to suffer while investors waited to see the full impact of a recession on their fortunes. He said large rises in arrears and repossessions were expected as unemployment rises and a squeeze on family incomes tightens over Christmas.
Royal Bank of Scotland slumped 9% to little more than 60p a share while HBOS dived 15% to settle at 59.8p. Both banks, which expect to be partially nationalised by the government, have seen 90% of their value wiped out since a peak early last year.
HSBC and Standard Chartered were considered safe havens until Asian nations signalled they were also expecting hard times ahead. India cut interest rates to stimulate the country's flagging economy. In South Korea, the Kospi plummeted 10.6%, falling 1,000 points and heading for a total decline this year of more than 50%.
On Wall Street, stocks fell sharply within minutes of the opening bell, but fears of a dramatic collapse to match the banking crisis of a fortnight ago were allayed as the Dow reached midday with a relatively modest drop of 3.5%.
Although distressed hedge funds continue to dump stock, traders suggested there was evidence of bargain-hunting among investors as US shares began to look cheap.
There was a glimmer of economic relief in data showing a 5.5% rise in US home purchases during August. The National Association of Realtors suggested that in terms of sales, the depressed property market appeared to have bottomed out.
On the stockmarket, big losers included the ailing motor industry. General Motors' shares slumped by 13% on fresh rumours, hotly denied by the company, that it could file for bankruptcy.
The US government revealed the extent of changing habits among motorists with figures revealing that the distance driven by Americans dropped by 5.6% during August, a fall of 15bn miles.
Energy companies suffered a pounding as the price of a barrel of crude oil reached a 17-month low. Chevron's shares dropped by 6% during early trading while ExxonMobil slipped 3.2%.
The US government said the treasury secretary, Henry Paulson, was "monitoring" the markets.
A White House spokesman, Tony Fratto, said: "Markets are trying to digest lots of new information - both changing economic conditions, as well as official policy responses, and it will take time for conditions to settle."
guardian.co.uk © Guardian News & Media Limited 2008 | Use of this content is subject to our Terms & Conditions | More Feeds
More...