World markets were caught in Wall Street's downdraft as fears over a global financial crisis sent investors fleeing for the exits.
European and Latin American stock markets gave up early gains Thursday and ended sharply lower after Wall Street stocks took a nose dive in late trading, triggered by news a major credit-rating agency may cut its ratings for General Motors and Ford Motor Co.
In Asia, trading opened Friday with waves of selling in Japan and South Korea. Japan's Nikkei index was off more than 10 percent, while South Korean share prices plunged 8 percent.
"The underlying fear is how much hell we have in terms of recession," said Howard Wheeldon, senior strategist at BGC Partners.
The Dow ended the day at its lows, finishing down 678.91, or 7.3 percent, at 8,579.19. The blue chips hadn't closed below 9,000 since June 30, 2003, and haven't closed at this level since May 21, 2003.
Europe's stock markets, which had traded as much as 3 percent higher, slipped back along with the Dow. Germany's DAX closed 126.62 points, or 2.5 percent, lower at 4,887.00, while France's CAC-40 ended down 54.19 points, or 1.2 percent, at 3,442.70. The FTSE 100 index of leading British shares closed 52.89, or 1.2 percent, lower at 4,313.80.
Brazil's Ibovespa index also initially rose 4.3 percent, only to reverse course and close down 3.9 percent at 37,080. For the second day in a row, Brazil's central bank sold dollars in a bid to stabilize the real against the U.S. dollar.
Argentina's Merval index led Latin American losses, plummeting 5 percent to 1,287 after opening sharply higher. Colombia's IGBC sagged 2.3 percent to 8,216, and Chile's IPSA fell 1.6 percent to 2,202.
Mexico's IPC was down 1.8 percent at 20,310 points a day after President Felipe Calderon unveiled plans for $4.4 billion in emergency infrastructure spending to inject funds into the economy.
Investors in the U.S. had been encouraged by the prospect that the Bush administration may take ownership stakes in certain U.S. banks as a way for dealing with a severe global credit crisis.
An administration official, who spoke on condition of anonymity because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return.
The prospect of the U.S. buying stakes in banks comes the day after the British government pledged some 50 billion pounds ($87.5 billion) to buy stakes in the country's major banks, as well as underpinning bank finances by a further 450 billion pounds ($778 billion).
The generally positive reaction to the British rescue package has helped shares in the two most troubled banking stocks gain plenty of ground. HBOS PLC stock was up 36 percent, while Royal Bank of Scotland added 15 percent.
"Those that have underperformed the most and are likely to benefit the most from the government plan are the main beneficiaries," said BGC's Wheeldon.
It wasn't just British banking stocks doing well though. In Germany, Hypo Real Estate Holding AG, which has received a government-sponsored rescue, was up 10 percent and Commerzbank AG was 4 percent firmer.
And the news that the governments of France, Belgium and Luxembourg will give struggling lender Dexia SA a yearlong guarantee on its new loans and deposits, sent the company's shares soaring by 18 percent.
No one is taking it for granted that the banking sector has stabilized on a day that Kaupthing, Iceland's largest bank, was nationalized.
"There's some cautious optimism that, though we're clearly not out of the woods yet, we're in a stronger position than we were a couple of days ago and collectively we are possibly getting somewhere," said Richard Hunter, a strategist at Hargreaves Lansdown.
Battered Russian stocks surged Thursday to regain some of the losses suffered early in the week when the markets saw their biggest-ever one-day falls. The RTS index — widely seen as the economic benchmark — gained 10.9 percent to close at 844.7 points on Thursday. MICEX, where most of Russia' trading takes place, went up 9.8 percent at 700.4.