Concerns that the UK economy could be heading for a recession and a sharp fall in US shares prompted the widespread sell off.

The FTSE 100 index of leading shares slumped more than 1% in early trading.

European stock markets also opened sharply lower.

US shock

The US stock market slumped another 2% on Thursday, unsettling other markets around the world.

Brazil's troubled finances prompted the sell off in New York and sparked fresh fears about the world economy.

Asian markets are also showing signs of nervousness, Tokyo's Nikkei index fell 57 points to 14,640 while Hong Kong closed flat at 10,052.

The Dow Jones Industrial Average of leading US shares has been hit hard for most of the week by investors cashing in profits.

It plunged back below 9,000 on Thursday, dropping 185 points to 8,879 by the closing bell.

European markets fell despite a concerted move by 11 European central banks to cut interest rates to stimulate the economy.

Brazil worries

In Brazil, the government's economic recovery plan has run into a brick wall as its parliament rejected a key measure in the austerity budget.

Wall Street returns to selling mode

The budget's implementation is also the key to an International Monetary Fund loan package to help the country stave off the threat of financial meltdown that has gripped other emerging markets.

Brazil is viewed as a lynch pin for Latin America's financial health, and weakness in that region would hit US economy, and American corporate earnings, hard.

Bill Meehan, chief market analyst at Cantor Fitzgerald, said: "Brazil is counterbalancing the European rate cuts, and the US markets are really concerned about exposure, especially hedge fund exposure, to Brazil."

Investors were also unhappy at figures which revealed that the Japanese gross domestic product had shrunk over the summer.

It means the second biggest global economic power has recorded negative growth for the fourth consecutive quarter.