Share prices across Europe tumbled on Thursday amid fears of a global economic slowdown and the impact of the Ebola crisis.
The main stock markets in the UK, Germany and France fell more than 2%, tracking a sell-off in Asia and on Wall Street.
On Wednesday, London’s FTSE 100 saw its heaviest one-day fall in 16 months.
Borrowing costs for Greece and Italy rose, and investors looking for a safe haven pushed the gold price higher.
Analysts said that a raft of disappointing economic and corporate news had unnerved investors.
Recent poor data from China, Germany and the US have heightened worries that global economic recovery could go into reverse.
And concerns about the spread of Ebola and its impact on emerging markets have added to the worries. Companies linked to travel and tourism have seen their share prices fall in the past couple of weeks, offsetting hopes that the recent fall in the oil price would lower their long-term fuel costs.
“It’s beginning to feel a bit like a perfect storm,” said Joe Rundle, head of trading at ETX Capital Market.
“You have the US Federal Reserve stopping printing money this month, deflation all over the place, oil coming down causing more deflation.
“Everyone is panicking to a certain extent and everything is on the downside, there is real momentum here and there’s a lot of money changing hands,” he said.
Capital Spreads dealer Jonathan Sudaria said the global economic situation did not warrant such a heavy share sell-off. But he said: “Add a potentially disastrous [Ebola] virus into the mix and the result is what we have here – pandemonium in the market place.”
Analysis: Andrew Walker, World Service economics correspondent
Is the eurozone crisis back? That would be putting it too strongly, but there are reasons to be uneasy.
In part, the turbulence in European markets is about a weakening global economic outlook. But then the eurozone is one of the principal causes of that.
There have also been some striking moves in eurozone bonds markets. There were sharp rises in the yields – in effect the interest rates – on government debts for the countries at the centre of the crisis.
For most of them there’s no cause for panic. Those yields are still affordable – below 2% for ten year bonds in the case of Ireland. But not for Greece, whose government bond yields have climbed three percentage points in a month to a level above 8%.
Can Greece support itself without further financial help? The bond yields mean it will be very difficult.
Bond market moves
Financial shares were among some of the biggest fallers across Europe. Royal Bank of Scotland was down another 3.6% after falling heavily on Wednesday.
Meanwhile, in France, Societe Generale and BNP Paribas fell 5% and 4% respectively amid worries about their exposure to a slowdown in southern European economies.
Greece’s borrowing costs rose on Thursday on fears about the country’s exit from the bailout it received during the financial crisis.
The yield on Greek 10-year bonds rose 85.2 basis points to 8.72% – its highest since January. Investors are worried that the country could struggle to borrow money once it is weaned off bailout money.
In Spain, Madrid’s benchmark IBEX 35 index fell 4.28% after a bond issue failed to raise as much as the government hoped.
Meanwhile, gold traded at a one-month high, while the price of copper and some other metals fell to multi-month lows amid concern that demand would fall because of an economic slowdown.
Michael Hewson, chief market analyst at CMC Markets, said that one of the big concerns among investors was the ending of the Fed’s monetary stimulus in the US.
“As the monetary morphine has started to wear off the patient has come to realise that a lot of the old problems still remain, and yesterday’s poor US data helped trigger a rather extreme reaction in not only the stock markets but bond markets too, as complacent investors rushed to hedge themselves.
“In essence, investors are asking the question with respect to the recent recovery about whether this is as good as it gets, which rather explains the slump in the oil price, bond yields and stock markets,” Mr Hewson said.
The sell-off in global markets looked set to continue when Wall Street opens. Futures trading suggested that the main markets will open about 1% down .