The world's markets were subject to another day of chaos on Thursday, with London's main FTSE 100 index seeing its sharpest fall in four-and-a-half years.
The FTSE 100 slumped 4.1%, or 250 points, to end at 5,859, with sharp losses echoed across Europe and Asia.
But hours before the closing bell in New York, shares on Wall Street staged a dramatic recovery.
After shedding more than 300 points in the trading session, the Dow Jones index closed down 0.12% at 12,845.8.
Fears that the turmoil in the US sub-prime lending market will hit banks and snowball into serious economic problems deepened after the biggest US lender, Countrywide Financial said it was tapping an entire $11.5bn (£5.8bn) credit facility to help it conduct its day-to-day business.
Earlier in the week, Countrywide said that mortgage delinquencies had risen in July to five-year highs.
The deteriorating conditions at the company, which provides home loans to one in five US homeowners, was a huge blow to investor confidence in risky assets, such as shares, which as been gradually chipped away by the unrelenting slump in the US housing sector.
As US interest rates have risen and the housing bubble has burst, a growing number of borrowers who are either on low incomes or have patchy credit ratings have defaulted on their loans.
The crisis in this section of the mortgage market, known as sub-prime, has led to extensive financial difficulties for a number of investment funds with heavy exposure to the once lucrative sector and triggered fears of a wider financial crisis.
A government report that showed construction of new homes in the US in July sliding to 10-year lows and news that investment banking giant Bear Stearns will chop 240 jobs at its sub-prime division, worsened the mood.
Even further intervention by the Federal Reserve, which pumped an extra $17bn (£8.6bn) into the US banking system on Thursday to try and restore confidence seemed unable to allay concerns that the problems in the financial markets was a portent of what lay in store for the wider economy.
How the markets fared
London's FTSE 100: down 4.1% to 5,859
New York's Dow Jones: down 0.1% to 12,845.8
Frankfurt's Dax: down 2.4% to 7,270
Tokyo's Nikkei 225: down 1.99% to 16,148.49
Over the past week, the Fed has now injected $88bn (£44.3bn), while the European Central Bank has put up 211bn euros ($283.2bn; £142.6bn).
But the action of the central banks has been largely dismissed and tens of billions of pounds has now been wiped off the value of the UK's leading shares alone since last Wednesday, with financial and mining stocks the worst off.
In Europe, Germany's Dax ended down 2.4% to 7,270 and France's Cac lost 3.3% to 5,265.
Earlier, Asian stocks were also battered, with Japan's Nikkei, Hong Kong's Hang Seng and the South Korean Kospi all caving in to the sharp aversion to risk that has marked the recent turmoil.
But in the US, the broader S&P index closed in positive territory, up 0.3% at 1,411.27 after retreating during the trading session, while the technology-dominated Nasdaq also recovered, but ended down 1% at 1846.09.
The upbeat finish was driven by optimism that two of America's biggest mortgage lenders, Fannie Mae and Freddie Mac could get the green light by the regulator to increase the size of their home loan books by a greater level than they are currently allowed.
This would offer more options for people to get access to cheap mortgages and inject liquidity into the system at a time when a growing number of lenders are closing or scaling back their sub-prime operations.
Fannie Mae and Freddie Mac had their operations curtailed after both were embroiled in accounting scandals a few years ago, but growing political pressure in Washington could see these restrictions lifted to prevent the credit outlook from worsening.
"The problems in the sub-prime mortgage market will linger on for a while," said Bart Ingels, an analyst at Fortis Bank in Brussels.