A "tsunami of bad news" hit world markets today as fears over the viability of the eurozone rescue package and the health of the financial sector caused traders to sell shares.
Traders were spooked amid reports that the Chinese Government may not contribute as much money to the one trillion euro (£877 billion) bailout fund as previously hoped, in a move that threatens to derail the recent rescue package.
And there were signs of fresh chaos in the financial sector, as international broker MF Global, which employs some 700 people in London, looks for a buyer amid fears it will collapse as a result of its exposure to eurozone debts.
A downgrade for the economic growth forecasts of the US and Europe by respected think-tank the Organisation for Economic Co-operation and Development added to the malaise.
The Cac-40 in Paris and the Dax in Frankfurt were both down 3%, while the Dow Jones Industrial Average was off more than 1% as the London market closed.
Michael Hewson, an analyst at CMC Markets, said European markets were "hit by a tsunami of bad news" after being weighed down by scepticism surrounding last week's European bailout package as well as a deteriorating economic outlook in Europe.
Meanwhile, the OECD warned of a "marked slowdown" in eurozone economies next year, with growth to drop to just 0.3% after 1.6% growth this year. Figures also showed high eurozone inflation and unemployment.
And there were fears that MF Global could spark fresh turmoil amid financial companies.
Kathleen Brooks, at currency trader Forex.com, said MF may be the second recent victim of the eurozone debt crisis, after French-Belgian bank Dexia was recently nationalised amid fears over its lending to debt-ridden eurozone nations.
She said: "Both are mid-sized financial institutions and are too small to be systemically important, but that doesn't mean that the rot will not spread.
"The risk is that as banks try to bolster their balance sheets there won't be many ready buyers for MF Global's various businesses, which could lead to another disorderly default in the financial sector."
Royal Bank of Scotland and Lloyds were both down nearly 8%, while Barclays was off 3%.
Miners also led the market downwards as confidence in the global recovery evaporated, meaning the traders expected less demand for metals. London-based miner Vedanta Resources shed 9%.
Despite today's falls, London's leading shares index has risen 8% in October, making it the best monthly performance since July 2009.
World markets have fluctuated wildly in recent months amid fears over the eurozone debt crisis but rallied strongly over the past fortnight as eurozone leaders announced a three-pronged package to write-down 50% of Greece's loans, recapitalise the banks and boost the bailout fund.