US stocks have ended the day in positive territory while European markets crashed to multi-year lows on Wednesday.
Thumbs down for shares
London shares closed at their lowest level since May 1995, shedding almost 5%.
Investors on Wall Street were downbeat for most of the day, as concerns over oil companies like Exxon Mobil and financial giant Citigroup added to jitters about a possible war with Iraq.
But after almost the entire day in the red, the Dow Jones index of leading shares closed up 28 points, or 0.4%, at 7,552.
Earlier in the day, Paris stocks had plummeted to levels a little over one third what they were at their September 2000 peak.
And Germany is now in the grips of a market downturn worse than it suffered in the Great Depression, calculations at investment bank Merrill Lynch have revealed.
"There's one word for it - carnage. It's horrible," said Richard Wright, at brokerage GNI in London.
"Nobody has any confidence. Nobody wants to buy anything.
"And if they do buy anything they're wrong within about 10 minutes. It's fairly gloomy."
Traders blamed the falls in Europe on poor corporate news, high oil prices, and the ever-present fears of war against Iraq.
Political moves on Wednesday were seen as heightening the risk of a lone US campaign against Iraq.
"It increasingly seems that the US is going to go it alone, which is the least desirable outcome," said Rupert Thompson, global strategist at independent brokerage E*trade.
And a report that US crude stocks had unexpectedly slumped prompted a rise in New York oil prices.
"People felt relatively comfortable with the idea that the oil price was up, but was coming straight back down again," Mr Thompson said.
"But now we know that it isn't going to come down quickly and that will be the basis for more economic weakness."
Poor corporate news worsened sentiment, with UK property firm Canary Wharf reporting sharply lower profits, and a weak letting market.
This represents a final sell-off in this stage of the bear market - panic and capitulation in the valley of death
David Franklin, director, Christows Stockbrokers
Canary Wharf shares closed down 22%.
In Paris, the price of Alstom shares halved after the engineering group announced the sale of a key business and the departure of its chief executive.
And in Italy, shares in Telecom Italia plunged by 11% as investors derided plans to merge with Olivetti.
Analysts at Dresdner Kleinwort Wasserstein said the deal's terms were "grossly unfair" to minority shareholders.
The fall in Germany's Dax index has seen it, for much of Wednesday, below the 2,200 mark which Merrill Lynch analysts believe marks the current bear market as worse than that of the 1930s' Great Depression.
"The 70% drop in equity prices since March 7, 2000 now threatens to take on historic proportions," Merrill Lynch said in a recent report.
Shares in insurers were in the firing line, as investors worried over solvency in the face of declining share prices.
Munich Re stock stood 8.6% down in afternoon trade while, in London, Royal and Sun Alliance shares closed 9.3% lower, and Friends Provident shares plunged 11.4%.
Rally to come?
But many analysts urged to stay calm amid the sell-off, with David Franklin, a director at Christows Stockbrokers, forecasting an imminent revival in share prices.
"This represents a final sell-off in this stage of the bear market - panic and capitulation in the valley of death," Mr Franklin said.
"The low point, and a starting level for a substantial rally is not far away."