The FTSE 100 fell almost 200 points, reaching 5592 at one stage. That was 183 points lower than Monday’s close. It ended Tuesday down 80 points at 5695. Germany’s Dax was down 4% and France’s CAC 40 was 3.5% lower. The Dow Jones slumped 290 points to 11,696 shortly after opening – a fall of 2.4%. It was later off 138 points at 11,855.
Luxury retailer Burberry’s shares fell a further 7%, while reinsurer Munich Re was down 1.5% and Hannover Re 5%. German fashion group Hugo Boss was down 6.5%.
Amid growing fears of nuclear disaster in Japan, traders dumped stock indiscriminately, sending the Tokyo market into freefall. The Nikkei 225 plummeted 14.4% at one stage, later closing 10.6% lower at 8605, taking its two-day loss to just over 16%. This is its biggest two-day fall since the 1987 global stock market crash.
The fresh falls came despite the Japanese government pumping another ¥5.4 trillion (£42bn) of emergency cash into the market. That followed Monday’s unprecedented £165bn emergency funding.
As Japan’s prime minister warned in a television interview of increasing radiation from the Fukushima nuclear plant, many stocks in Tokyo were untraded as the market struggled to deal with a flood of sell orders from panicked hedge fund traders.
The index smashed its volume figures for a second day running, with 5.77bn shares traded on Tuesday, a 20% increase from the record set on Monday.
Stock markets in Asia followed the Nikkei down, with the Hang Seng index falling 3% and the Korea Composite index down by 2.8%.
Major commodities fell too. Oil was down as much as 2.2%, with Brent crude for April delivery falling below $112. Gold, while often a safe-haven in troubled times, fell $10.7 an ounce, more than 1%, as speculators sold the precious metal to cover losses elsewhere.
Official Japanese efforts to calm the market seem to have failed, with the Japanese prime minister Naoto Kan talking of the increasing radiation threat.
“There has been a fire at the Number 4 reactor and radiation levels in the surrounding area have heightened significantly. The possibility of further radioactive leakage is heightening,” he said in a TV interview.
Economics minister Kaoru Yosano said that it was important to keep the Tokyo markets open despite the sell-offs, fearing a closure would have a major international impact.
Alex Hawkes writes for guardian.co.uk