In London more than £36bn was wiped off the value of leading stocks after the market suffered its third biggest points fall in history.

Worries about the state of the UK economy caused the FTSE 100 index of blue chip stocks to fall 206.4 points, or more than 3%, at 5537.5.

London's share collapse followed a sharp fall in stocks in New York.

The recovery on Wall Street has come to an end

Analysts believe share prices have risen too high, too quickly after plunging in early Autumn.

Cuts in US and UK interest rates have restored some confidence to global financial markets.

However there are fears that the world economy is still in a perilous state, with economic growth slowing sharply and crisis still looming in Asia, Russia and Latin America.

The Dow Jones index in New York had another mixed day, after notching up huge losses On Monday.

Stocks swung up and down, before finally closing up almost 17 points.

The market reacted nervously to the decision by Mobil and Exxon to form the world's largest oil company.

Wall Street woes

On Monday, Wall Street suffered its biggest one-day fall since September.

Plummeting Internet stocks sent shares spiralling down 2.32% to close at 9,116.55 - a fall of 216 points.

"People just woke up and realised the market may have gotten in front of itself," said Mara Glassel, vice president of Equity Focus Group, at Prudential Securities.

"Earnings are still not that great and the economy is still having some trouble. Those problems are still with us."

Europe heads down

In Germany, the Dax 30 index tumbled more than 4% to close down 241 points at 4781.7.

"In the last two weeks we've only been going up, so there's profit-taking going on. But the nervousness has not fully passed," said Oliver Wrangel, a trader at Merck, Finck & Co.

In Paris, the Cac 40 index closed down 155 points at 3688.3.

One trader said: "We've had too much, too soon, and now people are feeling less complacent concerning the economic growth outlook and how that will feed into earnings.

"We need a period of consolidation and it looks like this one will last across the board for some time," he added.

Asian blues

A Hong Kong trader holds his head in his hands

Asian markets were also mostly weaker on Tuesday, dragged down by Wall Street and lingering concerns over the economic outlook.

Markets in Singapore, Bangkok and Jakarta all shed more than 3% while Wellington, Seoul and Manila were down more than 2%, and Sydney and Taipei each lost about 1%.

The Hang Seng index in Hong Kong also echoed the Wall Street tumble and was down 3.5% by 0738 GMT.

Tokyo stocks ended little changed as the market shrugged off the sharp fall in New York and the bankruptcy of construction company JDC.

By the close, the key Nikkei 225 stock average was down 48.29 points or 0.32% at 14,835.41.