Share prices worldwide were sharply down on Thursday, as falling retail sales in the United States increased fears of a recession, sending markets into the red again.
Signs of optimism seen earlier this week when markets recovered some of the lost ground have been all but wiped out, despite massive banking rescue packages.
Many investors are now convinced that the US economy, if not already in a recession, is moving towards one. It is the worst financial crisis since the Great Depression of the 1930s.
Leaders of the world's major economies say they are confident that by working together they can bring back financial stability and prosperity.
But such sentiments could not offset the impact of new data from the US which indicated that the world's biggest economy may be on the brink of recession.
Retail sales slumped by 1.2% in September, showing a sharp decline in consumer spending, which drives two thirds of the US economy. Rising unemployment and a continuing decline in house prices are forcing many Americans to cut back.
Markets were rattled by the US retail sales result, with Japan's Nikkei index plunging 11.4% on Thursday, the biggest loss in two decades and wiping out most of its gains earlier in the week.
The MSCI index of Asia-Pacific shares outside of Japan fell 7.8%, Hong Kong's Hang Seng shed 7.6%. while South Korean markets closed 9.4% lower.
The New Zealand benchmark index fell 5%, while Australia's bourse was down nearly 7% by the close of trade.
European shares opened sharply lower following the dramatic falls in Asia and the Pacific. In early trading, London's FTSE 100 fell 2% while France and Germany's main indexes were both down 3%.
On Wall Street, the Dow Jones index saw its worst one-day fall on Wednesday since the stock market crash of October 1987, losing almost 8%.
US Federal Reserve chairman Ben Bernanke warned that American economy now faced a "significant threat" from the credit crisis, and it would take some time to restore normal flows of credit. The government on Tuesday offered to take up to $US250 billion worth of equity in its banks.
G8 summit to discuss crisis
The leaders of the G8 major industrialised nations are to hold a summit with other states to discuss global financial reform. The move came as French President Nicolas Sarkozy said European Union leaders had backed a plan to aid the bloc's banking sector at a summit in Brussels.
British Prime Minister Gordon Brown has called for the rebuilding of the International Monetary Fund to help regulate the world's financial systems.
In a joint statement, the leaders of the G8 countries - the United States, Britain, France, Italy, Germany, Canada, Japan and Russia - said that changes had to be made to the "regulatory and institutional regimes for the world's financial sectors to remedy deficiencies exposed by the current crisis".
"We look forward to a leaders' meeting with key countries at an appropriate time in the near future to adopt an agenda for reforms to meet the challenges of the 21st century."
Mr Brown told the BBC that the meeting would take place in "the next few weeks".
Call for new financial rules
Mr Brown described post-World War II financial architecture as no longer adequate. Both he and Mr Sarkozy want to reform the world financial order which was put in place at the Bretton Woods conference in 1944.
The conference established the rules for the international monetary and financial order and created such bodies as the International Monetary Fund.
Mr Brown said the IMF has to be rebuilt as "fit for purpose" for the modern world and an early warning system was needed for the global economy.
German Chancellor Angela Merkel also told her parliament that new international financial rules were needed with the IMF taking on a bigger supervisory role.