London's Footsie was trading below the 4,000 mark for the first time in more than five years - down almost 10% - as a dire start in US markets offered no respite.

The Dow Jones Industrial Average, which fell more than 7% yesterday, tumbled a further 8% in early trading.

Across Europe, France's CAC 40 and Germany's Dax were also showing losses of more than 10% in a day of trading carnage.

Manoj Ladwa, senior trader at ETX Capital, said: "Markets are normally held in equilibrium by the balance of fear and greed. But at the moment, greed has gone into hiding and fear rules the roost."

Overnight losses in Asia saw Japan's benchmark Nikkei 225 index close almost 10% lower - down 881 points in its worst session since Black Monday in 1987.

In London, banking stocks were among the biggest victims of the turmoil as speculation mounted over the billions they may need to strengthen their finances.

Halifax Bank of Scotland was the biggest Footsie faller, down 25%. Royal Bank of Scotland lost 22%, while Barclays shed 16%.

The sell-off sent the value of safe havens such as gold up by as much as 4% as investors took their money out of volatile stock markets.

The panic came amid little sign that Government efforts to rescue banks on Wednesday with a £400 billion package of capital and guarantees had eased the thaw in frozen money markets.

Alongside the crisis-hit banking sector, heavyweight mining stocks plunged amid falling base metal prices and growing panic over a potential global recession.

On Wednesday, the International Monetary Fund issued a fresh warning that Britain was on the brink of recession - predicting in its latest World Economic Outlook the economy would contract by 0.1% next year as growth across the developed countries slowed to almost zero.

In London, mining firm Xstrata led a retreat for the sector - down 13% - as investors worried over falling demand for metals and minerals.

The same factor was hitting crude oil, which was trading below 80 dollars a barrel for the first time in a year.

In New York, crude for November delivery reached a low of 78.61 dollars - little more than half the 147 US dollars a barrel it peaked at less than three months ago. Brent crude was as low as 75.08 dollars a barrel in London.

The falling crude prices weighed on petrochemical heavyweights BP and Royal Dutch Shell, which both fell 6%.

The latest share tumble comes after a tumultuous week for world markets. Monday saw the biggest Footsie fall since the Black Monday crash in October 1987 - wiping £93 billion off the index - and have dropped heavily every day except Tuesday.