“We are fighting really dire fundamentals,” said Gerhard Schwarz, an equity strategist at Unicredit in Munich. “It will require restoring trust and confidence before a sustained rebound will be possible.”

European markets fell more than 10 percent at the opening, but came off their lows a bit later. In early afternoon trading in London, The FTSE 100 share index was down 8% at 3,964 points. It opened 9.8% lower at 3887 points, below the 4,000-point level for the first time in five years. There were similar falls across Europe - Paris was down 8.4% while Germany was down 9.1%. 

Shares in Asia also declined as fears continued to spread that a deep global recession is at hand, despite unprecedented steps by policy makers to defuse the financial crisis. As the urgency grew, finance ministers and central bankers from the world’s richest countries were gathering for a meeting in Washington, and President Bush was due to make a statement on the crisis at about 10 a.m.

Japan’s Nikkei 225 stock average — already reeling from a nearly 10 percent drop Wednesday — slumped 9.6 percent on Friday, closing at 8,276.43.

Trading in United States index futures suggested the Dow would fall about 3.3 percent at the open. On Thursday, the Dow fell 678 points to 8579.19, its first close below 9,000 since 2003, as stocks were routed in the final hour. 

Investors fear a global slowdown, despite interest rate cuts and huge cash injections by central banks. The Prime Minister, Gordon Brown, has again called on other countries to follow Britain's bank rescue package.

"What we need now is for other countries to be doing similar things," he told the BBC news channel. It is obviouse that as World stock prices fell to a five-year low today as investors cut and ran in the face of an increasingly certain global recession.

With G7 finance ministers and central bankers prepared to hammer out a co-ordinated rescue plan at talks in Washington, European indices plummeted. The FTSE 100 plunged more than 10 per cent at the opening and was still 8 per cent down by midday. Germany's Dax and France's AC 40 were equally badly hit, with financial stocks leading the falls. 

Analysts said that sterling was also being hurt by the increasingly heated row between Britain and Iceland over the fate of more than £1 billion of UK savings locked in accounts at collapsed Icelandic banks and who should compensative account holders. Gordon Brown on Wednesday used anti-terrorism laws to freeze Icelandic assets in the UK, a move condemned by his Iceland counterpart, Geir Haarde, as a "completely unfriendly act".

“The Iceland crisis is fuelling the fear and lack of confidence; that investors are already feeling about Britain," said Tim Clayton, chief strategist at Investica.

The situation is far more serious, however, for Iceland, which grew rich on cheap credit but has now been forced to beg Russia for funds. The entire country, except for the singer Bjork, was put for sale on the eBay auction site, offering buyers "a habitable environment, Icelandic horses and admittedly a somewhat sketchy financial situation".