Wall Street tumbled sharply following similar falls across Europe and Asia, before clawing back some ground.

The Dow Jones Industrial Average closed 3.6% down having gone more than 5% lower in early trading while the Nasdaq index finished 3.2% down.

On European markets, London closed 5% lower, Frankfurt slid more than 5% and Paris was down more than 3.5%.

Investors have been dumping shares worldwide because of gloomy prospects for the global economy – and are looking at other forms of investment.

Amid wider signs of the global economic slowdown:

– Asian shares tumbled, with Tokyo down 9.6%, Seoul plunging 10.6% and Hong Kong falling 8.3%. In Latin America, Brazil’s main market fell 7%
– Oil prices have continued to fall, despite Opec’s efforts to steady prices by cutting output by 1.5 million barrels a day. US, light sweet crude fell $3.69 at $64.15 . London Brent dropped $3.87 to $62.07
– The UK economy shrank for the first time in 16 years between July and September, confirming that Britain is on the brink of recession
– The pound saw its biggest one-day drop against the dollar since 1992 falling to $1.52, its lowest level in six years, before rebounding slightly to $1.58
– The euro dropped to $1.25, its lowest level for two years, on expectations of eurozone interest rate cuts and slowing economic growth
– In Moscow, share trading was suspended on both main share indexes until 28 October, after they plunged more than 10%.
– Investors are now trying to ascertain how deep the global recession will be and the impact on future growth

Global money markets have showed renewed signs of stress, despite the billions of dollars that central banks and governments have pumped into the markets in recent weeks.

Investors worldwide are worried about falling share prices and the possibility of companies defaulting on their debts.

As a result, they have been selling shares in markets across the globe and switching to less risky forms of investments, such as government securities.

‘Awful cycle’

On Friday, the yield on US Treasury bills fell – a sign that demand for them is high and investors are willing to earn lower returns in exchange for a safe investment.

However, there was one glimmer of hope and a sign that banks may be more willing to lend to each other. Three-month lending rates among banks in the US and Europe dipped slightly.

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The rate for lending dollars over a three month period eased to 3.52%, though the fall was very slight – just 0.02%.

The rates have fallen steadily for 10 days, as confidence in the banking sector has been helped somewhat by all the rescue measures announced by governments.

“Investors are now trying to ascertain how deep the global recession will be and the impact on future growth,” said Chris Jarvis, at Caprock Risk Management, New Hampshire.

The dollar and yen both rose sharply against most other major currencies, kindling speculation that central banks might be forced to intervene to rein in volatile moves.

“You are seeing the currencies move as they would in any sort of full-fledged panic,” said Firas Askari, at BMO Capital Markets in Toronto.

“I think we have to be close to the end of this awful cycle. It’s usually darkest at the bottom,” he said.

News reported by The BBC