European banking shares hit a near two and a half year low on renewed worries of the health of the continent's banks, while safe-haven gold prices nudged up against the $2,000 an ounce mark, and crude prices fell as investors feared a global slowdown will zap demand for crude.
"This week has seen a continuation of the trend of weaker than expected data and political reaction to the European problems which pretty much amounts to 'Let's have a get together a couple of times a year,' " said Gary Jenkins, an analyst at Evolution Securities."
Britain's FTSE 100 lost 2.1 per cent to 4,987, while Germany's DAX fell 3.3 per cent to 5,394. France's CAC-40 was down 2.8 per cent to 2,989.
Wall Street was headed for another slide, with Dow futures down 1.5 per cent to 10,849 and S&P 500 futures 1.7 per cent lower at 1,124.
Market turmoil, marked by selling off risk positions, of the last two days has dashed any hopes of a quiet second half of August — a normally quiet period when trading dries up until the U.S. returns from the Labor Day holiday in early September.
Financial markets have wrestled for several weeks with fears that a new recession in the U.S. is in the offing. Another round of soft economic data further spooked investors all round the world. A woeful manufacturing survey Thursday from the Federal Reserve Bank of Philadelphia renewed U.S. recession fears in particular.
A parallel concern centres on Europe after a Franco-German summit earlier this week failed to persuade investors a convincing fix to the spiraling debt crisis was imminent. The leaders promised further economic integration but no concrete measures like eurobonds, which would spread the risk among the 17 nations using the common currency.
Banks have borne the brunt of the selling ever since partly because German Chancellor Angela Merkel and French President Nicolas Sarkozy indicated their countries were developing a plan to tax financial transactions. Worries over their financial health and their accompanying exposure to government debt have further weighed on their share prices.
One moderately bright spot for European policymaker remains the relative calm in the bond markets after the European Central Bank started buying up Italian and Spanish bonds. Both countries' yields on their ten-year bonds have fallen over a percentage point to below 5 per cent, which is considered manageable.
There's also been some calm in the currency markets, with the euro up 0.3 per cent at $1.4338 and the dollar down 0.4 per cent at 76.45 yen.
Earlier, Asian shares also took a beating following the big retreat Thursday in Europe and the U.S.
Japan's Nikkei 225 index dropped 2.5 per cent to 8,719.24 and Hong Kong's Hang Seng slid 3.1 per cent to 19,399.92.
Mainland Chinese shares tracked losses elsewhere, with shares in coal, oil and cement leading the decline. The Shanghai Composite Index lost 1 per cent to 2,534.36 after dipping almost 2 per cent earlier in the day. The Shenzhen Composite Index lost 0.8 per cent to 1,133.84.
Oil prices continued to tank too amid fears over global demand. Benchmark oil for September delivery was down $2.76 to $79.64 a barrel in electronic trading on the New York Mercantile Exchange. Crude fell $5.20, or 5.9 per cent.
In London, Brent crude for October delivery was down $1.77 cents to $105.22 per barrel on the ICE Futures exchange.