New York's Dow Jones index was trading more than 3% down, while Frankfurt's Dax and London's FTSE 100 indexes closed almost 3.5% lower.
European Commission President Jose Manuel Barroso's warning that the sovereign debt crisis is spreading spooked the markets.
Meanwhile, the price of gold hit a new record high of $1,677 an ounce.
More weak jobs data from the US also raised concerns about the strength of the economic recovery there.
Banks were hit particularly hard, with Lloyds Banking Group down 9.9% and Royal Bank of Scotland falling 7% in London, Societe Generale losing 6.9% in Paris and Commerzbank dropping 6.8% in Frankfurt.
Miners also suffered, with Vedanta Resources slumping 9.5% and Xstrata and Eurasian Natural Resources falling more than 8% in London.
The oil price also slumped on fears that a weaker global recovery would hit demand. US light crude fell by more than $4 a barrel, or almost 5%, to $87.63. London Brent fell by almost $5 a barrel to $108.85.'Exceptional circumstances'
In a letter to European governments, Mr Barroso warned that the eurozone debt crisis was spreading beyond the so-called periphery nations of Greece, Portugal and the Republic of Ireland.
He said markets "remain to be convinced that we are taking appropriate steps to resolve the crisis".
BBC
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