European stocks slumped more than five per cent to fresh five-year lows yesterday afternoon, with Wall Street down too as investors fled on worries the bear market will claim more corporate victims while earnings reports disappoint.
The selling was broadly based, and among the top decliners, Swiss Zurich Financial sank 24 per cent, while media leader Vivendi Universal was down 14 per cent and Swedish telecom equipment maker Ericsson fell 10 per cent.
Swiss engineering group ABB lost a third of its share price after poor earnings.
By 1403 GMT, the FTSE Eurotop 300 index of pan-European blue chips was down 5.2 per cent at 829 points, a level last seen in 1997.
"I don't think there's one particular reason for the fall but there are rumours flying everywhere," one European equities trader said.
On Wall Street, the Dow Jones industrial average fell 1.3 per cent to 7,601 points. The Nasdaq Composite was off two per cent.
Talk of financial institutions in trouble and that the Federal Reserve was holding an emergency meeting - a rumour which the central bank declined to comment on - added to the gloom from lacklustre earnings from leading European companies.
Efforts by policymakers such as European Commission President Romano Prodi to bolster confidence had no impact.
Some dealers and fund managers said official steps to prop up markets were almost inevitable, particularly to help sectors like insurers.
"It's fairly dire out there. People are truly shell-shocked. Whether we're coming to the end of this particular bout of panic selling and mass hysteria, God only knows, but at the moment it feels very much like capitulation," the equities trader said.
Some experts believe that capitulation or a massive washout is a sign that a bottom is being reached, though not every bear market in the past has ended in such a dramatic way.
Among the industry groups, insurers were hardest hit as they reeled from worries about their solvency in the face of slumping equity markets.
Dutch Aegon fell 16 per cent and France's AXA shed 13 per cent.
The Eurotop 300 was suffering its fourth straight day of heavy losses, taking its cumulative loss since Friday to 16 per cent. If the benchmark stayed at current levels it will be its weakest close since May 2, 1997.
More than 1.4 trillion euros has been wiped off the value of Europe's 600 leading shares since the start of the year.