World markets have plunged amid renewed fears about the credit crisis, sending shares in finance firms sharply lower.
What started as a housing slowdown has prompted a wider crisis
On Wall Street the Dow Jones Industrial Average shed more than 360 points or 2.6%, after two leading banks were downgraded earlier in the day.
The UK's FTSE 100 saw its largest one-day drop since the height of the credit crunch in August, down 135.5 points or 2.02%.
Benchmark European stocks had also ended lower in both France and Germany.
The Paris-based Cac 40 dropped 2% and Frankfurt's Dax ended 1.7% lower.
While stocks in the US had risen on Wednesday after the Federal Reserve opted to cut rates to 4.5% from 4.75, by Thursday fears about the credit crisis dominated markets.
Data released by the Commerce Department suggested that consumers had tightened their spending in September - a signal of the slowing economy.
And CIBC World Markets had downgraded two leading US finance firms - Citigroup and Bank of America sending their shares 6.8% and 5.4% down respectively.
"The news coming out of financials, the downgrades in particular on Citigroup, is really pulling the market down," said Owen Fitzpatrick, of Deutsche Bank Private Wealth Management in New York.
And even JPMorgan Chase, which recently announced stronger profits for the quarter, was hit - ending 5.7% lower.
The BBC Global 30 that tracks stocks worldwide slipped 1.55% while The Standard & Poor's 500 Index was down 2.6% to 1,508.44 and the Nasdaq Composite Index fell 2.2%, to end at 2,794.83.
Finance stocks in the UK were similarly harmed, with troubled mortgage firm Northern Rock ending 7% lower after Bank of England figures showed it had lent the firm close to £23bn in emergency funding.
The bank was especially hard hit by the credit crunch, triggered by a slowdown in the US following a rise in mortgage defaults.
What started as a problem in the US then spread to markets worldwide, prompting turmoil in August.
It has become difficult for banks to access funds, as lenders become cautious of providing money to risky borrowers.
Other fallers on the FTSE 100 included Barclays, down 5.4%, while Royal Bank of Scotland dropped 3.4%, amid fears that more banks could suffer from credit difficulties.
Meanwhile in Europe, Commerzbank dropped 4.6% and Deutsche Bank fell 3.4% by close of trade in Frankfurt.
And Switzerland's second largest bank, Credit Suisse, fell 4.6%, after seeing profits slump 31% for the third quarter, having being hit by a rise in bad debt.