Nearly €1.8 billion was wiped off the value of the Irish stock market as global shares tumbled amid growing pessimism about the outlook for corporate earnings.
Rising scepticism that military action in Iraq could not be averted also took its toll on investor confidence, sending European shares toward five-year lows.
Banking, insurance and technology stocks bore the brunt of the losses in the wake of profit warnings from US banking giant JP Morgan Chase and US software giant Oracle after stock markets closed in the United States on Tuesday.
The international weakness had a direct knock-on effect in Dublin, where the ISEQ index of shares slid by more than 3 per cent lower. It was hit by a weak performance from financial stocks in particular, as Irish Life & Permanent lost nearly 6 per cent of its value, AIB shed around 4 per cent, while Bank of Ireland dipped by 3.5 per cent.
The profit warning from JP Morgan Chase, the second-largest banking company in the US, seriously rattled the financial sector. It warned that its third-quarter earnings would be well below the second quarter's due to steep losses on loans to telecommunications and cable firms, and misplaced trading bets.
Meanwhile, Oracle's announcement that first-quarter profit fell by 33 per cent as sales slumped in Europe and Asia did for the software sector what JP Morgan had done for the banks.
On Wall Street, the Dow Jones index of leading industrial shares shed 0.43 per cent while the technology-oriented Nasdaq fell by 0.62 per cent. The Tokyo Nikkei shed 0.75 per cent
The falls extended heavy losses on Tuesday after weak US industrial data heightened concerns that the world's largest economy might be limping back towards recession.
Mr Ralph Acampora of Prudential Securities said investor sentiment had been battered by concerns over Iraq as well as the sputtering US economy.
"Investors, in our belief, do not appear to trust the Iraqi government and appear even more concerned about our faltering economy," he said.
"A noticeable change in the markets trading pattern has emerged over the past week or so.
"It appears that market rallies are now being used as an opportunity to sell. For us, this form of distribution is not a good omen."
European markets fared even worse than their US counterparts.
Across the 12-nation euro zone, the Euro Stoxx 50 index hit levels not seen since July.
In London, the FTSE 100 slumped 4 per cent to its lowest level for eight weeks, with financial stocks again proving the weak spot as Barclays and Prudential fell by more than 8 per cent.
"The earnings outlook has been uncertain, unpredictable and relatively muted for all of this year. More and more investors are looking to the end of next year, if not later, for salvation from corporate earnings," said one London-based research analyst.
In Frankfurt, the German DAX 30 index plunged by more than 5 per cent to its lowest level in five-and-a-half years.
A warning from Kiel-based research institute IfW that the much-touted economic upturn in Germany would be longer in coming than originally hoped did little to raise investors' spirits.
Meanwhile, France's CAC-40 closed at its lowest level since October 1998 after briefly breaching the psychological 3,000-point level earlier in the day.
US consumer prices rose last month at the fastest pace since April, and the nation's monthly trade deficit fell in July, as imports dropped for the first time this year, according to official reports released yesterday.
The Labor Department said its consumer price index (CPI) grew by 0.3 per cent in August, slightly above expectations, after a 0.1 per cent rise in July.
The core CPI, which excludes volatile food and energy prices, also rose 0.3 per cent. The increase was led by a sharp rise in costs for tobacco and clothing.
A recent report on wholesale prices suggested there was little inflation in the pipeline but some economists have pointed to a rebound in commodity prices as a potential concern.
The Federal Reserve has kept short-term interest rates at a 40-year low for much of the past year on the assumption that inflation will remain contained for now, although it has warned that an increase is inevitable. - (Additional reporting by Reuters)
