Global stock markets have slumped, with the US Dow Jones index plummeting by more than 400 points and London's FTSE 100 index also posting sharp losses.
Wall Street has followed global markets, falling steeply
The sell-off was sparked by a near-9% slide on the Shanghai Composite Index, as investors worried that China may pass rules to limit demand for stocks.
The Dow Jones fell more than 500 points at one point, before closing down 416.02 points, or 3.29%, at 12,216.24.
The FTSE 100 closed on a fall of 2.3%, or 148.6 points, to 6,286.1.
Elsewhere on Wall Street, the technology-laden Nasdaq index closed down 3.86% at 2,407.87, while the S&P 500 index closed down 3.47% at 1,399.04.
The New York Stock Exchange instituted trading curbs at 1303 EST (1803 GMT) in a bid to stem falls on the US stock market, although the move was not enough to prevent the Dow plunging nearly 300 points in a matter of minutes in late trading.
European markets suffered as well, with the main indexes of the Paris and Frankfurt stock exchanges shedding about 3% each.
Earlier in the day, Hong Kong's Hang Seng index had ended trading on a loss of 1.8%, while Japan's Nikkei 225 index slid 0.5%.
"The sell-off in China continues to have a profound effect on stocks across the board, since the largest unwinding in the Shanghai Composite Index since 1997 leaves investors questioning the sustainability of stock gains everywhere," said analysts at Briefing.com.
The eyes of investors will now be on Asian markets to see whether the investor panic spreads. If that happens, European and US markets could face another round of sell-offs.
The first stock market to open the new trading day in the Asia-Pacific region, New Zealand, saw key share prices plunge nearly 3% during the first hour.
'Sense of panic'
Investor sentiment on Wall Street was also knocked by figures showing that US growth may be slowing down more than anticipated, with a government report earlier showing that orders for durable goods in January had dropped by the largest amount in three months.
"As the afternoon has progressed, there seems to be a sense of panic among some professional investors," said Andre Bakhos, president of Princeton Financial Group.
"There seems to be just an air of nothing is safe anymore, there's nowhere to go and people are rotating into bonds as a safe haven."
China has been one of the main emerging markets for many investors as the country's economy has grown strongly and the government has sold stakes in some of its biggest and most attractive companies.
However, the government has been looking at ways of slowing growth in order to stop the economy from overheating, and many investors are worried that it may lead to tougher regulations that will limit stock-market investment.
At the same time, there are concerns that interest rates will have to be raised in order to rein in economic and price growth, further denting domestic demand for shares.
"Foreign companies which are particularly exposed to China have been badly affected," said Peter Dixon, an economist at Commerzbank.
"These companies basically will suffer in the event of things going sour in the Chinese market."
Standard Chartered, a lender that focuses on emerging markets, was one of the biggest UK decliners on Tuesday despite reporting earnings that topped analysts' forecasts.
Standard Chartered was down 4% at 1,450 pence.
Also hurting UK shares was a newspaper report that South Africa may consider asking companies in the mining industry to pay an extra tax.
The news hit shares of mining firms, with Xstrata losing 6.7%, Vedanta Resources shedding 4.9%, Anglo American down 4.7%, BHP Billiton falling 6.2%, and Rio Tinto sliding 4.8%.
South African newspaper Business Day said the government may ask mining companies to pay an additional tax on top of the royalties they already pay when commodity prices climb above a certain level.
Commodity prices have climbed to record levels in recent months.