The FTSE 100 index of leading British shares was down 69.73 points, or 1.7 per cent. at 4,112.29 while Germany's DAX was 29.76 points, or 0.6 per cent, lower at 4,591.04. The CAC-40 in France was 23.07 points, or 0.7 per cent, down at 3,209.99.

Earlier Japan's benchmark Nikkei 225 stock average fell 456.87 points, or 5.3 per cent, to 8,238.64 and Hong Kong's Hang Seng index dived 5.2 per cent to 13,221.35.

The latest selling pressure has been stoked by a run of bad US corporate news over the last week. Grim news from the likes of department store chain Macy's Inc. and consumer electronics retailer Best Buy Co. weighed on US stocks Wednesday with the Dow Jones industrial average down 4.7 per cent at 8,282.66, its third straight loss.

In addition, investors reacted nervously to the announcement from US Treasury Secretary Henry Paulson that the original US$700 billion (S$1 trillion) financial rescue package won't be used to purchase troubled assets from banks. The Treasury will instead rely on buying stakes in banks and providing more direct help to consumer debt markets.

'News that a plan to buy troubled mortgage assets has been shelved in favor of tackling problems with non-bank and consumer finance is certainly going to heap yet more concern on the market,' said Matt Buckland, a dealer at CMC Markets.

Things are not expected to improve much later when Wall Street opens. Dow futures were up 11 points, or 0.1 per cent, to 8,891.

It's not just the US economy that's prompting concerns around the world.

The world's developed economies are in recession and set to shrink further in 2009, a top international organisation said on Thursday.

In its latest economic forecasts, the Paris-based Organisation for Economic Cooperation and Development said gross domestic product was likely to fall by 0.3 per cent in 2009 for its 30 member countries, representing democracies with market economies. It said the U.S. economy would contract by 0.9 per cent, Japan's by 0.1 per cent and the euro area by 0.5 per cent.

Germany officially sank into recession earlier as government figures showed Europe's biggest economy contracting for the second quarter in a row during the third quarter.

'Downgrades to the global economic outlook are gathering pace,' said Hans Redeker, an analyst at BNP Paribas.

Elsewhere, Australia's benchmark index slid 5.9 per cent to a four-year closing low of 3,697.3 as banks tumbled and lower commodity prices hit miners. BHP Billiton Ltd., the world's biggest miner, sank almost 12 per cent and Rio Tinto was down more than 8 per cent.

The Shanghai Composite Index bucked the regional trend, jumping 3.7 per cent to 1,927.61 as the Chinese government's $586 billion economic stimulus package announced on Sunday continued to underpin sentiment.

Stephen Roach, chairman of Morgan Stanley Asia, said China's stock market, where the key index has fallen by about two-thirds since its peak last October, may rebound next year if the country can maintain a high growth rate.

'There are earnings problems now emerging in Chinese companies which are producing stiff headwinds for a number of high-profile Chinese stocks. But I think the market has taken a lot of that on board and so if China ends up growing more rapidly than investors expect, and I think that will be the case in 2009 and into 2010, this market could turn around a lot,' Mr Roach told reporters during a conference in Singapore.

Exacerbating the gloom in Tokyo was a strengthening yen, which erodes the value of their overseas earnings when converted back to the local currency. The yen was trading at 96.04 to the dollar in Asia, versus 97.98 yen a day earlier.

Sony Corp. plunged 8.7 per cent, Nintendo Co. was off 6.9 per cent and Panasonic Corp. retreated 7.4 per cent.

South Korea's main Kospi index fell 3.2 per cent to close at 1,088.44 after earlier falling as much as 7.4 per cent. So far this year, the index has declined 42.6 per cent. Samsung Electronics Co. dipped 1.4 per cent while Hyundai Motor Co. fell 3.6 per cent.

Oil prices continued their decline after the US Energy Department said Wednesday it expects US consumption of petroleum to next year drop more severely than any time since 1980.

Light, sweet crude for December delivery was down US$0.22 to US$55.948 a barrel.

The euro was 0.1 per cent lower at US$1.2485. -- AP