Europe and Asia joined Wall Street's sell-off on Tuesday, sending world stocks to their lowest since April 2003, while oil fell and government bonds rose as fresh concerns grew about the financial system.
Germany's closely-watched IFO survey showed sentiment among manufacturers deteriorating in February, with the business climate index unexpectedly falling a touch to 82.6.
On Monday, Wall Street hit a 12-year low as investors grew nervous Washington's possible plan to increase its stake in Citigroup and other various bailout packages might not be enough to tackle the global financial crisis.
Adding to a bleak picture, a source told Reuters that American International Group, rescued twice last year by Washington, is asking for more aid and bracing for a fourth-quarter loss of roughly $60 billion -- which would be the biggest loss in a quarter in corporate history.
"The banking sector is again at the center of the negative newsflow. Full nationalizations are more and more conceivable," said Jacques Henry, analyst at Louis Capital Markets in Paris.
"If we don't get a rebound soon, stocks can fall to much lower levels."
Outright nationalizations weigh on equity and bond markets alike because they knock equity values and force governments to issue more debt to fund bailout packages.
The MSCI world equity index fell 0.7 percent to hit its lowest level in almost six years. The FTSEurofirst 300 index fell 1.3 percent.
Emerging stocks fell almost 2 percent.
Tokyo shares lost 1.5 percent to approach 26-year lows even as Finance Minister Kaoru Yosano said the government would consider a call to buy shares directly to support the stock market.
"Efforts are being made, but as always the devil is in the detail," Calyon said in a note to clients.
"At the moment the market is rattled by the perception that there is not enough detail as to what these plans will actually mean and how long they will take to last, with each actual, or rumored policy announcement providing more questions than answers."
U.S. crude oil fell 1 percent to $38.02 a barrel. The March bund futures rose 35 ticks.
The dollar rose 0.8 percent to 95.46 yen. The yen's safe-haven appeal has been waning in recent weeks as concerns grow about Japan's economic and political uncertainty.
The euro rose 0.3 percent to $1.2740. The dollar was steady against a basket of major currencies.