In London the FTSE 100 Index collapsed by nearly 260 points in early trading before recovering, then falling again to close down 119.1 at 5249.4.
The Dow Jones opened confidently, rising 70 points during the morning before falling 154 points at lunchtime, recovering slightly in the afternoon when the index was off 40 points at 8128 points, and closing at 8051.68, after a total fall for the day of 114.31. Earlier, shares in Tokyo had fallen to a 12-year low when the Nikkei index closed down 497.6 points at 13,915.2.
In Russia, shares fell to new historic lows, although the volume of trade was negligible, according to dealers.
In Frankfurt, shares were pounded by concern over the exposure of German companies to Russia's failing economy. The Xetra DAX electronic index fell 5.2 per cent but rallied to end the day down 86.9 points at 4925. France, with a lighter exposure to Russia, saw its CAC-40 index fall by 36.7 points to close at 3708, a dip of 1 per cent.
Deutsche Bank and Bank of America, two of the world's biggest banks, yesterday became the latest to reveal exposures amounting to several hundred million pounds as a direct result of the crisis.
Deutsche Bank confirmed it had lent a total of 1.35bn marks (pounds 460m) to Russian institutions without the support of state guarantees. It had also taken a big position in short-term Russian government paper totalling $290m (pounds 175m).
It said it would not know the scale of its loss until the Russian government published details of its debt restructuring plan. Trading in the short- term paper has been halted by the Russian government.
Deutsche Bank - Germany's largest private bank - said it had made other investments to offset the position in government paper. "The bank will follow further developments in Russia closely and will adjust its already considerable amount of corresponding risk provisions as required according to the latest developments," said a statement.
BankAmerica yesterday said it too had fallen victim to the crisis. It revealed trading losses of $220m in the last three months alone, most of them in Russia.
Seeking safer investments, traders rushed into government bonds. That sent the yield on 30-year US government bonds to its lowest level since sales began in 1977.
Iain Lindsay, head of capital markets strategy at BMO Nesbitt Burns, said: "We're in a state of panic and paralysis - there's outright confusion here. The wave of panic hasn't passed yet."Reuse content