Separate data on US house prices also showed the worst decline in at least 20 years, adding to fears of a slowdown in consumption, which drives about 70 per cent of the US economy.

Heightened concerns
 
Meanwhile, there are heightened concerns that problems with US mortgages, will spill over into the wider economy.

Justin Urquhart Stewart, a strategist of Seven Investment Management, said: "Now the question is not so much where the losses are and how far the cancer has spread but how much of the business and consumer economy are affected."
 
The renewed nervousness has almost diminished a recent period of recovery that had enabled many stock markets to gain ground.

Credit markets continue to pose threats
to economic stability [GALLO/GETTY]
Morgan Stanley International's (MSCI) main world index was down 0.6 per cent on the day and has lost 2.8 per cent from an intraday high on Monday.
 
However, it remains 4.6 per cent above its August 18 low.

The FTSEurofirst 300 index of top European shares was down 0.7 per cent, turning negative for the first time. 

Among sectors, banks and oil producers were the top losers on the pan-European index, as oil prices had decreased over concerns about the economy.

Earlier, Japanese stocks hit their lowest close in a week after previously falling by nearly 3 per cent.

The benchmark Nikkei average lost 274.66 points or 1.69 per cent to 16,012.83.

The broad TOPIX index ended at 1,557.55, down 1.7 per cent.