European and Asian stock markets plummeted Wednesday, mirroring heavy losses the previous day in New York, on mounting fears that weakness in the US housing sector could infect the world economy.
In London, Frankfurt and Paris the main share indices were down almost 2.0 percent nearing the half-way stage. 
The yen meanwhile hit a four-month high against the dollar and oil traded close to an all-time peak in New York as investors exited risky investments and turned to safe-havens, dealers said.
Wall Street took a pounding Tuesday, with its three main markets closing down more than 1.0 percent as news of spreading troubles in the US mortgage sector prompted investors to bank profits.
Japanese stocks slumped by more than two percent on Wednesday, with the Nikkei-225 index ending below 17,000 points for the first time in more than four months.
Economists said there were growing jitters about the potential fallout from problems in US subprime lending sector, where mortgages are provided to people with questionable credit histories.
Analysts are concerned that growing mortgage defaults will hurt banks and finance companies enough to curb the availability of credit on which the economy feeds.
That, in turn, could affect private equity groups because their takeover bids are often financed by large amounts of bank debt.
"The central issue that concerns the equity market is really the extent to which this whole subprime fallout will affect a general credit squeeze and reverse the expansion we have seen in the global economy," said Mike Lenhoff, chief strategist at Brewin Dolphin Securities in London.
"There is this worry now that the ease with which lending has taken place and the ease with which there has been access to borrowing to finance the global economy is being unwound."
No market was immune to plunging equities on Wednesday, as Hong Kong's key Hang Seng Index closed down 3.15 percent, China share prices shed 3.81 percent and Indian's main equity market plunged 3.96 percent.
Sydney's main stock market meanwhile dived 3.3 percent after market favourite Macquarie Bank said two high-yielding funds faced losses of up to 300 million dollars (258 million US).
Shares in Macquarie Bank, known for its deal making and massive executive pay-checks, shed 10.7 percent as a result, enough to prompt Australian Treasurer Peter Costello to offer assurances that all was well.
US stocks had powered ahead on Monday as investors shrugged off unease about a widening economic crisis that led to last week's bruising for the equity market.
"We're likely to see the volatility persist for a while," Lenhoff said.
"We'll have some good days, we'll have some bad days and eventually we'll see a slightly clearer picture of what this subprime fallout really means for the banks as well as for the credit markets.
"In turn that will hopefully help the credit markets to settle down and move ahead," he added.
Elsewhere on Wednesday, financial markets were keeping a close eye on oil prices, as New York crude remained close to an historic high.
Analysts say the New York oil price could strike a new all-time peak, above its current record of 78.40 dollars a barrel, should the US Department of Energy reveal on Wednesday a further drop in US energy inventories.
Ahead of the DoE's inventory report, New York crude stood at 77.72 dollars a barrel, down 49 cents.
"There is uncertainty in the market," Seymour Pierce analyst Amit Thakar said on Wednesday. "Investors are concerned there is still bad news to come from the US subprime market as they remain unsure about the extent to which hedge funds and investment banks have been impacted."
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