US consumer prices plummeted 1.0 per cent last month, raising the prospect of deflation if consumer demand fails to pick up. Construction starts on US homes also hit a record low in October, reports showed.
'Almost all the news is negative, as you'd expect because the economy is slowing so much,' said Mr Rick Meckler, president of investment firm LibertyView Capital Management in New York. 'There just doesn't seem to be a lot of positive points for optimists to point to.'
US shares were slammed by worries about the economy and prospects for carmakers, whose leaders were in Washington for a second straight day warning of dire consequences if no government help is forthcoming.
The Dow Jones industrial average dropped 5.07 per cent to close below 8,000 for the first time since March 2003, while the S&P 500 Index and NASDAQ Composite each plunged more than 6 per cent.
Banks and commodities dragged European issues to their lowest close in 5-1/2 years, and Japanese shares were hit by concerns about exports and autos.
Grim outlook
ECB President Jean-Claude Trichet said on Tuesday the crisis marked the first time since World War Two that the heart of the industrial world's finances have been at stake.
Other central bankers seemed to share the bleak view.
Minutes of the Bank of England's last meeting, when it cut interest rates by a sharp 1.5 percentage points, showed it had considered an even bigger reduction to tackle the recession and raised bets on further cuts ahead.
Federal Reserve officials slashed economic growth forecasts through 2009 and some believed even deeper interest rate cuts may be needed if growth slows further, minutes of their October policy meeting showed on Wednesday.
'Members anticipated that economic data over the upcoming intermeeting period would show significant weakness in economic activity, and some suggested that additional policy easing could well be appropriate at future meetings,' the minutes of the Oct 28-29 meeting said.
The comments helped send the dollar lower against the yen.
Fund managers are embracing defensive assets such as utility stocks, government bonds and cash. US and European debt prices rose on signs of fading inflation.
Investors sold off Latin American currencies, stocks and bonds, taking their money to safer havens on fears of more global weakness.
Bonds backed by US commercial real estate loans cratered for a second day on fear the fast-weakening US economy could lead to a wave of defaults on loans on properties such as office buildings, retail stores and hotels.
Pleading with Congress
The 'Big Three' US carmakers - General Motors , Ford Motor and Chrysler LLC - pleaded for help to the US Senate Banking Committee for a second day.
Although Senate negotiators sought to craft a compromise plan, the executives faced stiff opposition from some Republicans and the White House as they made their case for a US$25 billion (S$38 billion) aid package.
'I'm anxious to see something happen,' Senator Christopher Dodd, chairman of the committee said. 'But frankly, the idea that there's going to be a bill, I think, is remote.'
Some analysts said it would be better to force the Detroit automakers into bankruptcy so they could reorganise, rather than pump in more money. At one point, GM shares dropped more than 16 per cent to a 66-year low.
Car companies in Japan and Europe are also under pressure.
Toyota said it would stop production at US and Canadian factories for two extra days next month and Nissan warned of more tough times ahead.
Economy bites corporations worldwide
Investors' concerns extended well beyond the automakers.
BASF, the world's largest chemicals maker by revenue, cut its 2008 profit outlook and announced cutbacks in production, citing a 'massive' fall in demand.
Japan's third-largest bank, Sumitomo Mitsui Financial Group , followed its larger peers by planning to raise at least US$2.9 billion through preferred securities to beef up a capital base rocked by rising bad loans.
Oilfield services giant Halliburton Co said it will struggle in 2009 to meet its long-term goal of increasing revenue by 20 per cent annually.
Oil prices dropped to 22-month lows as US inventories rose and demand weakened due to the economic slowdown.
Authorities worldwide have recapitalised banks, thrown massive funds into frozen money markets and acted to revive their economies at a cost approaching US$5 trillion.
German Economy Minister Michael Glos said the EU's executive arm will unveil a stimulus package worth US$164 billion next week.
Russia's central bank said it had sold US$57.5 billion of its reserves in the last two months to defend the ruble and contributed US$14 billion to a bank bailout plan.
The four Nordic countries agreed on a US$2.5 billion loan for Iceland, where three top banks failed. -- THOMSON REUTERS