Investors steered clear of equities today and headed for safe-haven government bonds as a slump in Japan's Nikkei and a climb in oil prices to near 4-month highs which raised concerns about the world economic outlook.
The dollar lost its footing in the jittery market climate and dealers were looking for losses on Wall Street, with stock futures already suggesting an opening decline.
The Nikkei share average tumbled almost 3 per cent, forcing the Tokyo stock exchange - the world's second-largest bourse - to close some 20 minutes earlier than normal after investors took fright at problems at Web portal operator Livedoor.
Disappointment over results from Intel and other US tech giants also cast a pall and traders said large sell orders may have been triggered by investors scurrying to cover their margin positions on Japanese stocks.
The FTSEurofirst 300 index of leading European shares dropped 1.3 per cent while the UK's bluechip FTSE 100 hit a two-week low, losing one per cent.
Analysts said the move down in shares was likely to be a temporary correction after recent over-exuberance. "The economy suggests that there is no reason why our markets should be as feisty as they've been, and this profit-taking is really just a reappraisal of the situation," said David Buik at Cantor Index. "To write the year off is ludicrous. Everybody is just taking stock of the situation."
Trading was suspended in Tokyo as the number of trades threatened to overwhelm the Tokyo exchange's computer system's capacity of 4.5 million per day. This was the first time it was forced to halt trading on capacity constraints since it opened its doors in its current incarnation in 1949.
News of a raid by prosecutors on Monday of Internet firm Livedoor, a favourite of small investors, has sparked an extended sell-off that has wiped out more than $300 billion in shareholder value in just three days.
The company is suspected of fudging financial reports and spreading false information to boost its share price.
The foreign exchange market was also watching disappointing quarterly results from US bellwether technology stocks and a jump in oil prices as militants threatened new attacks on Nigeria's oil industry.
Oil neared $67 as Nigerian militants set their sights on Total, Agip and Chevron operations in a drive to halt oil flows from the world's eighth biggest crude exporter.