Dow Jones FTSE 100 FTSE 250
Futures on the Dow had earlier been suspended in pre-market trading after falling by a maximum of 550 points.
Fears over the state of the global economy and the continued trouble in credit markets weighed heavily on traders’ minds, following on from heavy falls in Europe and Asia.
The sell-off was exacerbated after the recent thaw in global money markets appeared to be coming to a halt, as concerns over a global slowdown re-emerged.
On the equity markets, big sell-offs came from financials, with worries growing that the US Treasury’s $125bn capital injection in to America’s leading nine banks may not be enough to reawaken the credit markets.
Shares in Morgan Stanley traded down 7.66pc while those in Goldman Sachs were 7.8pc lower.
Pressure is growing for Treasury Secretary Hank Paulson to utilise the remaining $125bn he has allocated to invest in the rest of the country’s banking infrastructure quickly.
It's carnage," David Buik, of BGC Partners said. "Confidence is shot to rippons. We need action now. It is a catastrophe that we have got to recession, but we have got to learn to live with it, and that means saving the markets."
However, the sharp falls on Wall Street were eclipsed by falls in London and across Europe.The index of 100 leading shares tumbled 292 points, or 7pc to 3,794 as official figures confirmed Britain is on course for its first recession since the early 1990s.
"This is once-in-a-lifetime stuff, we're all sat under our desks with tin hats on,'' said Neil Mellor, a currency strategist at Bank of New York told Bloomberg.
The Treasury did back today’s deal by PNC to acquire National City for $5.2bn – with the help of a $7.7bn capital injection – but this is the first such deal among a highly fragmented regional banking market made up of more than 8,400 institutions.
Shares in General Motors were also under pressure, as investors became fearful about the company’s continued liquidity as a deal with rival Chrysler appears to be as far away as ever.
But it was not just the Dow which came under pressure, with the broader S&P500 index down 4.7pc and the Nasdaq off 4.16pc.
“There’s a lot of panic out there today,” Scott Fullman, director of derivatives investment strategy for WJB Capital Group told the Associated Press. “People have been saying that we’re in a recession. This is the realisation.”
Overnight some Asian markets tumbled to five-year lows, as economic indicators brought back ugly reminders of the Asian Financial Crisis a decade ago. Tokyo's Nikkei 225 average led the slump closing down 811.9 or 9.6pc at 7,649.08, its lowest level since May 2003. It has lost half its value this year, much of that this month as the economy was reported to have officially contracted.
South Korea's Kospi index, which has been in freefall all week, fell another 10.6pc or 110.96 points at 938.75, breaking the psychologically important 1,000 barrier for the first time in three years. In Hong Kong, the Hang Seng index fell 486.87 points, 3.5pc, to 13,273.62.
There is now a real fear that the New York Stock Exchange may have to use its circuit-breakers to halt trading, should the continued falls get out of hands. The NYSE’s circuit-breakers were last triggered on October 27, 1997 during a wide-scale market plunge triggered by the Asian financial crisis.
In unprecedented action, trading was halted twice back then as the sell-off steamrolled through NYSE circuit breakers, first when the Dow was down 350 points and later as it fell 550 points. They were adopted under measures taken after the 1987 crash, aimed to slow the market's downdrafts.
If the Dow falls by more than 1,100 points before 2pm, trading will be halted for an hour. There are a series of higher levels of breakers which will be imposed should the market fall harder, a situation which would have seemed unthinkable only six weeks ago.
Stock markets around the world have fallen dramatically today. This is following the ongoing events in the financial world and related statements by several United Kingdom politicians, including Prime Minister Gordon Brown.
Stock markets worldwide fell dramatically today 
The British FTSE 100 index was one the indices that today suffered from large falls. It fell by 5.00% to slip below the four thousand mark, at 3,883.36 points.

Two of the major United States indices saw falls of over two per cent. The Dow Jones Industrial Average fell by 252.01 points (2.90%) to 8,439.24 by 17:30 UTC, while the Nasdaq Composite index experienced a 2.30% drop.

South American markets performed particularly badly today. By 17:30 UTC, the Argentinean MERVAL index had fallen by almost six per cent to 906.160 points, while the Brazilian Bovespa fell by 6.89% (2,328.45 points) to a value of 31,490.04.

David Buik of BGC Partners commented on today's falls. "It's carnage," he said. "Confidence is shot to ribbons. We need action now. It is a catastrophe that we have got to recession, but we have got to learn to live with it, and that means saving the markets."
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