London's FTSE 100 index and France and Germany's main stock markets all lost more than 4% in early trading.

Japan's Nikkei index fell 4.3% to its lowest close since February 2004, while Hong Kong's Hang Seng index slid 4.3%.

The falls came in the first trading session since the US approved a $700bn (£399bn) bank bail-out.

The rescue plan's lack of immediate impact on the availability of credit for banks had contributed to markets being driven downwards, analysts said.

"The Fed's bail-out plan may have been passed on Friday but so far there's been no real reaction in credit markets and because of this the natural assumption is going to be that the measures won't work, even if such a call is rather premature," said Matt Buckland of CMC Markets.

Failing banks

Analysts said that Germany's increased 50bn euro ($68bn; £38.7bn) bail-out of Hypo Real Estate, the country's second-biggest commercial property lender, had alarmed investors.

Germany earlier appeared to announce an unlimited guarantee for private savings and Denmark later followed suit.

The Hypo RE rescue came amid other developments including:

The Icelandic government agreeing measures for the country's banks to sell off some foreign assets in a bid to shore up its entire financial system. Iceland's currency last week plummeted 20% against the dollar and the government was forced to bail out the country's third-largest bank, Glitnir
French giant BNP Paribas confirming it had agreed to buy 75% of Fortis's operations in Belgium and Luxembourg. In return, those governments will take a minority stake in BNP.
In London, the FTSE 100 index lost 225 points, 4.5% to 4,754 points after an hour of trading.

Germany's Dax-30 lost 4.3%, while France's Cac 40 slipped 4.5%.

Earlier Japan's Nikkei index closed down 465 points at 10,473.1 - a four-and-a-half year low.

Markets in India, China, Australia and Singapore also lost ground.

BBC