Wall Street shares ended sharply down on Wednesday after weaker-than-expected results overnight from Intel and Yahoo, and a plunge on Tokyo's Nikkei.
The stock market gloom has spread to the US
The Tokyo exchange had to close 20 minutes early as a rush of selling following allegations of fraud at a firm threatened a system meltdown.
Both this and the failure of Intel and Yahoo to meet profit expectations also hit the European exchanges.
The main Dow Jones index ended the day down 41 points to 10,855.
The wider Standard & Poor's 500 gave up 5 points to 1,278, while the technology-heavy Nasdaq lost 23 points to 2,280.
The mass sell-off in Tokyo was caused by allegations of fraud at internet company Livedoor, and ended with the stock exchange having to close 20 minutes early.
Japan's benchmark Nikkei index has now fallen more than 6% in two days.
The poor fourth-quarter results from Yahoo and Intel have bolstered suggestions from some market watchers that the global exchanges are due for readjustment after the extended run of gains seen in the last quarter of 2005.
They say equity investors are beginning to reappraise the markets on the basis of more stable oil prices, slower economic growth in the US and Europe and lower corporate earnings.
David Buik of Cantor Index agreed that the Livedoor investigation was a "trigger" but not the only reason for the sharp fall in Japanese markets.
Falling Japanese shares have had a knock-on effect
"Tokyo had rallied 25% in four months - too much by any standards," he said.
In light of Wednesday's early closure, the Tokyo Stock Exchange has said it will now shorten trading by 30 minutes a day until further notice.
Analysts said the early closure would damage the image of the world's second-largest exchange, which has plans to list its own shares.
Japanese Prime Minister Junichiro Koizumi said that the chaos in Japan's markets would not last.
"I believe it is temporary because I think the general situation of the economy is solid," Koizumi said.
Prosecutors raided the Tokyo offices of Livedoor on Monday, following allegations the company had violated Japanese securities laws.
Bosses at Livedoor denied the company broke market rules by giving misleading information to shareholders, but shares in the company still dived on Tuesday.
The Nikkei 225 index ended Wednesday down 464.77 points to 15,341.18.