Former US Federal Reserve chief says world faces “once-in-a-century credit tsunami”.
Investor flight from emerging economies, a number of which looked set to seek help from the International Monetary Fund, compounded market anxiety.
US stocks struggled to stay positive after major indexes hit five-year lows on Wednesday.
More bad company news on Thursday showed the breadth of the slowdown, which has hit profits from banks to chemical-makers to hotels.
Barry Ritholtz, director of equity research at Fusion IQ in New York, said: “The market is coming to grips, after being in denial for so long, with a global recession.”
In Europe, Germany’s DAX closed down 51.37 points, or 1.12 per cent, at 4,519.70.
Britain’s FTSE 100 index of leading shares closed up 46.94 points, or 1.16 per cent, at 4,087.83, while the CAC-40 in France rose marginally, ending up 12.69 points, or 0.38 per cent, at 3,310.87.
Earlier on Thursday, Asian markets had fallen heavily, with Hong Kong’s Hang Seng index down 506.11 points, or 3.6 per cent, at 13,760.49.
Japan’s Nikkei average reduced its earlier losses to end 2.5 per cent down.
The slump came as news emerged that Japan’s trade surplus for September had plunged 94.1 per cent in September amid weakening exports and the soaring cost of importing energy and raw materials.
European and Asian leaders are gathering in Beijing, the capital of China, for the seventh annual Asia-Europe Meeting (Asem), to discuss measures to counter the global financial crisis.