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London's FTSE 100 index and France and Germany's main stock markets all sank more than 5.5% in morning trading.

Japan's Nikkei index fell 4.3% to its lowest close since February 2004. Hong Kong's Hang Seng index slid 5%, while key Russian markets slumped by 15%.

The falls came in the first sessions since the US approved bank bail-out.

The $700bn (£398bn) rescue plan's lack of immediate impact on the availability of credit for banks had contributed to markets being driven downwards, analysts said.

"The Fed's bail-out plan may have been passed on Friday but so far there's been no real reaction in credit markets and because of this the natural assumption is going to be that the measures won't work, even if such a call is rather premature," said Matt Buckland of CMC Markets.