Stocks in the United States slid on Thursday on worries that the US economy may slide into recession even if Congress passes a $US700 billion rescue package.
A second vote by the House of Representatives is expected on Friday on the bailout plan after the Senate passed a revised version on Wednesday.
However, the Dow Jones shed more than 3% while the S&P 500 and Nasdaq dropped 4%.
The number of people filing for unemployment benefits is at its highest for seven years. In addition, there was a steep drop in factory orders in August.
The price of oil fell more than 4%. Commodity prices also fell.
The Dow Jones industrial average fell 348.22 points, or 3.22%, to 10,482.85.
Standard & Poor's 500 Index slid 46.78 points, or 4.03%, to 1,114.28. The Nasdaq Composite Index dropped 92.68 points, or 4.48%, to 1,976.72.
The Dow has lost 21% since the beginning of the year, while the S&P 500 has dropped 24% and the Nasdaq has fallen 25%.
Insurance stocks fell after Senate Majority Leader Harry Reid raised the question of whether a well-known insurer could be in financial trouble.
Hotel operator Marriott International Inc warned that 2009 would be tough.
Trading was moderate on the New York Stock Exchange, with about 1.51 billion shares changing hands - below last year's estimated daily average of roughly 1.90 billion.
About 2.21 billion shares were traded on the Nasdaq - slightly above last year's daily average of 2.17 billion.
European stocks also fell on Thursday. The FTSEurofirst 300 index of top European shares closed 1.4% lower at 1,057.51 points. The index is down 30% to date for 2008.
Mining and industrial stocks took a beating. Shares of European automakers also tumbled after a fall in sales in the United States in September.
Investors were also cautious about the fate of a $US700 billion rescue plan for the financial sector, which was passed by the Senate by 74-25 on Wednesday night.
The House of Representatives, which rocked markets worldwide on Monday by rejecting an earlier version of the bailout by 228-205, is expected to vote on the bill on Friday.
Data showed new orders at US factories sank by 4% in August - the sharpest contraction since October 2006. Monthly jobs data is also due at 1230 GMT on Friday.
Earlier, European Central Bank President Jean-Claude Trichet said economic activity was weakening in Europe.
However, the ECB left its main interest rate at 4.25%, but a cut was considered as the eurozone economy slows and inflation risks eases.
Around Europe: Germany's DAX index was down 2.5% and France's CAC 40 dropped 2.3%.
In Britain, the FTSEurofirst 300 was down 30%, 89.3 points, at 4,870.3.
Markets in the Asia-Pacific region were muted.
The New Zealand share market closed slightly higher on Thursday. The NZX 50 benchmark index was up 44 points, or 1.38%, to 3232 on light turnover of $65 million.
Telecom was up 3 cents to $2.95. Contact Energy was down 6c to $7.88, while Fletcher Building rose 4c to $7.20.
Auckland International Airport was up 3c to $2.07. Vector rose 6c to $2.16 and Rakon lifted 7c to $2.39. The Warehouse was down 1c to $3.18.
The New Zealand dollar has slipped on the currency markets. At 8.20am on Friday, it was trading at US65.84 cents, 85.05 Australian cents, 37.24 pence, 69.14 yen and 0.4756 euro. The Trade Weighted Index was at 63.57.
At 5.20pm on Thursday, the dollar was trading at US67.35 cents, 85.07 Australian cents, 38.03 pence, 71.26 yen and 0.4814 euro. The TWI was 64.61.
Australia & Japan
The Australian share market closed lower on Thursday. At 1615 AEST, the S&P/ASX200 index was down 33.5 points, or 0.7%, at 4761.1, while the All Ordinaries index had fallen 40.4 points, or 0.84%, to 4774.1.
Japanese share prices closed down 1.88% on Thursday, hitting a three-year low.
The Tokyo Stock Exchange's Nikkei-225 index lost 213.50 points to end at 11,154.76 - its lowest point since May 2005.