US share indexes tumbled amid fears that a wobble in the mortgage market may prompt a global credit crunch.
The Dow Jones fell 199.24 points, or 1.5%, to 13,458.62. The S&P shed 1.7% to 1,472.42, and the Nasdaq lost 1.4% to 2,576.48.
European indexes slumped earlier after the European Central Bank said it was pumping money into the banking market.
Analysts said that the markets would remain volatile in the near future.
The declines in the US came despite attempts by President George W Bush to calm market fears.
Shares have swung wildly on fears that the crisis in the sub-prime lending market will cause a credit squeeze.
Speaking after a meeting with his top economic advisers, President Bush acknowledged there had been "disquiet" on Wall Street over the housing slump.
But President Bush said he believed the markets were set for a "soft landing".
The recent collapse of American Home Mortgage, the 10th largest lender in the US, intensified concerns that housing woes could drag down the economy as a whole.
But despite the recent turmoil, President Bush said he expected the markets to focus increasingly on the underlying health of the global economy and robust US prospects.
"The underpinnings of our economy are strong," he said, adding that second-quarter growth had been strong, while both inflation and unemployment remained low.
"So the conditions for the marketplace working through these issues are good. My hope is that the market, if it functions normally, will be able to yield a soft landing."
There have been growing calls in Washington for more financial assistance for people unable to meet mortgage payments and tougher laws to protect people from predatory lending.
But existing laws were sufficient to deal with the sub-prime fallout, President Bush argued.
"I think we ought to crack down on predatory lending," he told the Fox News Channel.
"I don't think we need new law, we ought to enforce the law on the books. And then I think we ought to let the market work."
Pressed on the same subject, Treasury Secretary Henry Paulson said that markets had been "unsettled" but argued that economic fundamentals remained "very solid".
Güncelleme Tarihi: 09 Ağustos 2007, 18:12