Fears that stresses in credit markets and the world economy as a whole are deteriorating despite central bank help hit financial markets today, sinking global stocks and sending the dollar tumbling.
The dollar hit another record low against the euro and fell below 100 Japanese yen for the first time in 12 years, underlining concerns among monetary officials about extreme currency moves.
Oil, meanwhile, was at a record high above $110 a barrel and gold was closing in on $1,000 an ounce. Wall Street looked set for a sharply lower opening while European shares were down around 2 per cent and Japanese equities lost more than 3 per cent.
In the latest credit market fallout, an affiliate of US-based buyout firm Carlyle Group, Carlyle Capital Group defaulted on about $16.6bn of debt.
"This is going to be a nail-biting day," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in the US state of Vermont. "The dollar seems to be going into a free-fall."
Investors shrugged off any remaining vestiges of the euphoria experienced earlier in the week from US Federal Reserve-led moves to provide liquidity to credit markets.
"We are entering dollar crisis mode," said Derek Halpenny, currency economist at BTM-UFJ in London.
"Looking at the markets there is a complete loss of confidence and that's because the markets are concerned over the US financial sector and ultimately what the (Federal Reserve) will be forced to do to support that sector," he said.
The recent currency moves have aroused concerned comments from European Central Bank President Jean-Claude Trichet and Japanese Finance Minister Fukushiro Nukaga.
Trichet, in an interview with French magazine Le Point, said disorderly swings in currencies were undesirable.
"In the present circumstances, I am concerned by excessive exchange rate movements," he told Le Point.
Nukaga said dollar/yen exchange rate moves were a reflection of dollar weakness rather than yen strength and noted that the Group of Seven industrial nations shared the view that excessive foreign exchange moves are undesirable for economic growth.
The euro hit a new high of $1.5624 before edging back a bit to around $1.5592. The dollar was at 100.25 yen having earlier broken to 99.77 yen.
The tumbling dollar, meanwhile, poses a dilemma for the hawkish ECB, which is holding off cutting interest rates because of concern about inflation pressures.
A rising oil price is one of the reasons for the pressure, but the price is spurred on by a weak dollar as this makes oil cheaper in other currencies. Oil was trading at a record high above $110 as investors weighed the dollar's weakness against bloated US crude stocks.
US crude for April delivery rose 66 cents to $110.58 a barrel, above the all-time peak of $110.20 hit on Wednesday.
"We're looking at the US dollar, we're looking at speculation, we're looking at geopolitical. Those three things tying together are defying fundamentals," said Peter McGuire, managing director of Commodity Warrants Australia.