Latest US government data showing that unemployment had risen by 61,000 last month deepened the gloom.
In Europe, speculation that many banks would soon need to embark on a new round of rights issues to shore up balance sheets was a major factor behind the drops, with financial stocks leading the way.
At 13:20 GMT today, the Frankfurt-based DAX 30 was trading 1.89 per cent down on 6,161.18, while London's FTSE 100 was also down by 1.2 per cent.
Meanwhile in Asia, the Topix had fallen by 2.6 per cent and the Hang Seng by 2.24 per cent as worries over the continent's exports grow.
"This market is very, very unstable at the moment," said Philippe Gijsels, senior equity strategist at Fortis Global Markets in Brussels, told the New York Times.
"The credit crunch is continuing; thatâs hitting earnings. It seems logical to retest the lows."