European stocks have joined a global sell-off, after concerns about the US economy and mortgage industry hurt markets in Asia and dented Wall Street.
Asian traders are concerned about the strength of the US economy
The UK's FTSE tumbled 103.4 points, or 1.7%, to 6,057.8. Earlier, Japan's Nikkei index closed 2.9% lower and New York's Dow Jones index ended down 2%.
Indexes in Hong Kong, Malaysia, India and Australia fell more than 2%.
The sell-off comes just as stocks were starting to recover from a sharp slump that rocked markets late last month.
Analysts said that market volatility was likely to continue, especially as many markets and stocks had climbed to their highest levels in more than six years.
Lee Cheng Hooi of EON Capital said that the worry for investors was that the problems in the US mortgage market could cause the world's biggest economy to slow down.
"This will cause a domino effect on the world economy," he explained. "There could be more bloodbath to come."
Although analysts said Asia's leading economies remained fundamentally strong, markets across the region are particularly sensitive to signs of a possible economic slowdown in the US, a key export market.
This latest round of selling has been sparked by concerns over the US sub-prime mortgage market.
Sub-prime lenders, who target consumers with poor credit histories, have been hit by an increase in defaults and bad loans.
Figures have shown that late mortgage payments and home repossessions in the US are at their highest level since records began.
New Century, the second-biggest sub-prime mortgage lender in the US, is seen by many observers to be close to bankruptcy - and the fear among investors is that this will ripple out into more stable parts of the economy.
"If the US sub-prime mortgage problems get worse, it could begin to hurt US consumers, and that would be very hurtful for exporters," said Kim Yung-min, a fund manager at SH Asset Management in Seoul.
"This month could be very bad," he added.
Wall Street's slide on Tuesday also gained momentum from a US Commerce Department report that showed retail sales rose at a lower-than-expected rate of 0.1% in February, suggesting consumer spending could be slowing down.
But while many investors are reassessing their holdings and shedding some of their riskier assets, many others are happy to ride out the storm and buy into markets with good long-term growth prospects.
"The sell-off is in sympathy with the sharp sell-off we saw overnight on Wall Street, and it highlights the continued nervousness out there," said David Cohen of Action Economics.
But "the world economy seems to be remaining on an upward trajectory", he explained, adding that this is probably "a correction after the strong rally that was experienced for the previous several months around the world".
For investors, the big question is how far and for how long this correction will last, and whether or not the current bull market run will be broken.
Last year, markets lost as much as 10% of their value in May, only to recover and surge even higher, setting many record share prices.
In the weeks before the first sell-off, sparked by fears of a new capital gains tax in China and Beijing's attempts to slow the economy, the FTSE 100 was at its highest level in more than six years.
The index has lost 5.7% since 26 February, wiping £92bn off its market value.
But that still leaves it with a total worth of £1.53 trillion - and many analysts are predicting steady earnings growth for its biggest firms.
The same is true for many of the main markets worldwide, said Tim Rocks of Macquarie Securities.
"We see the outlook as fundamentally very, very strong," he explained.
"It's a danger to become too defensive in this environment. Obviously we're not going to know the full extent of this slowdown in the US for some time now, so there's some reason for caution."