Worries about war with Iraq combined with concern over corporate and economic health around the world continue to weaken stocks and keep investors hungry for safe haven assets like gold and bonds.
The dollar was steady against the euro on Friday, but rose against the yen after indications, later confirmed, that the Bank of Japan intervened on the foreign exchanges last month.
Oil prices were level as uncertain markets across the globe awaited any news about the likely scenarios for a Gulf conflict.
Analysts said markets were particularly concerned about whether the United States would decide to go it alone or whether it could put together a coalition and get UN backing for an attempt to disarm Iraq.
Bush said on Thursday that diplomatic efforts to end the showdown over Iraq's suspected possession of weapons of mass destruction would last "weeks, not months".
"The general picture remains the picture of high uncertainty for the markets," Childe-Freeman said.
A sharp sell-off overnight on Wall Street that took US stocks to three-month lows helped undermine sentiment on European bourses, which were already fearful that insurance companies will need to sell shares to bolster solvency.
The FTSE Eurotop 300 index of pan-European blue chips was about 1.1 per cent lower, heading back towards six-year lows after a brief respite from the selling over the past couple of sessions.
The narrower DJ Euro Stoxx 50 index was down around 1.5 per cent.
Shares in French insurer Axa dived 4.4 per cent after Moody's Investors Service downgraded the group's credit rating outlook.
"Renewed concerns about financials are driving markets lower. People are unsure at which levels insurers will be forced sellers of equities," said Khuram Chaudhry, a European strategist at Merrill Lynch.
Wall Street had grappled with both war and economy fears, with data showing US growth ground to a virtual halt in the last quarter of 2002.
The Dow Jones Industrial average lost 2.04 per cent, the Standard & Poor's 500 index fell 2.29 per cent and the tech-loaded Nasdaq Composite ended down 2.65 per cent.
In Japan, technology and telecom stocks fell on Friday, but the tech-sensitive Nikkei average staged a last-minute rally to close 0.28 per cent higher at 8,339.94. The broader TOPIX index lost 0.48 per cent at 821.18.
The falling stock markets, general concern about weak economic growth and fear of war provided a fillip to euro zone government bonds, lowering yields.
The two-year Schatz yield was down just 0.1 basis points at 2.62 per cent. It hit a three-and-a-hafl-year low at 2.54 per cent last month.
The benchmark 10-year Bund yield was 4.8 basis points lower at 4.042 per cent.
"This is a safe-haven switch," a Frankfurt-based trader said, referring to investors moving from shares to bonds.
The dollar held above recent lows on Friday ahead of the Camp David talks about war on Iraq and more US data.
After hitting a three-year low against the euro beyond $1.09 last week, the dollar has held above that level.
It stood at around $1.082 against the euro, little changed from late New York levels last Thursday.
It was around 119.06 yen, having risen after a Japanese finance ministry official said the central bank sold yen in foreign exchange intervention last month.
Gold was trading at more than $370 an ounce on Friday compared with $369.75/370.50 at Thursday's close in New York.
"Gold prices... remain supported by the increasing likelihood of war in Iraq and uncertainty surrounding the strength of the recovery in the US economy," said Deutsche Bank in a report.
On the oil market IPE Brent crude oil futures were trading in a narrow range. Traders said dealings were likely to remain thin ahead of a key intelligence presentation by US Secretary of State Colin Powell on Wednesday on Iraq's weapons.
The March contract was down five cents at $31.16 a barrel after settling 33 cents higher on Thursday.