Fear of impending war in Iraq sent stocks to multi-year lows today and gripped investors across the world's financial markets.
Oil prices, however, fell ahead of a key meeting of oil-exporting nations as Saudi Arabia promised there would be no shortage of oil in the event of war.
War fears - and worries about the state of the US economy - kept the dollar near four-year lows against the euro. European bond yields hit historic lows before recovering slightly.
The FTSE 100 fell 0.1 per cent to 3,432.9 this morning extending its slump. Yesterday, the index fell below the 3,475 level, half its all-time peak, to its lowest close since June 1995.
In New York last night the Dow Jones Industrial Average tumbled 171.85, or 2.2 per cent, to 7,568.1, less than 150 points off its October 7th low.
Shares in Japan were among the worst affected, falling more than 2 per cent to close below 8,000 for the first time in 20 years as investors fretted that war in the Gulf was imminent. The Nikkei average closed down 2.24 per cent at 7.862.43.
European shares followed suit, touching six-year lows. The FTSE Eurotop 300 index of pan-European blue chips was down 0.84 per cent; the narrower DJ Euro Stoxx 50 index was 1 per cent weaker.
"We are caught in a vicious cycle of selling that only resolution on Iraq can break," said Mr Gert de Mesure, head of equity strategy at Delta Lloyd Securities in Antwerp.
Expectations that Washington will soon wage war on Iraq, and concerns - sparked by poor US job data last week - that US recovery was far from assured kept the dollar stalled near recent four-year lows at $1.1022 per euro.