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LONDON - World stock markets plunged on Tuesday as fears about an economic slowdown in the United States and the end of the Chinese economic bubble sparked a global wave of selling.
Asia was dragged down by a plummeting Shanghai stock market, Wall Street slumped, and the main European indices showed falls of between 2.0-3.0 percent on average at the close.
Metal and mining stocks were particularly hard hit because of concerns about demand from China, which has been the driving force behind record prices for raw materials in recent years.
The Dow index tumbled 416.02 points (3.29 percent) to close at 12,216.24 after plummeting as many as 540 points moments earlier in a highly volatile session marking the worst day on Wall Street since 2001.
The main blue-chip index plunged some 250 points in a matter of minutes in late afternoon deals, a move analysts attributed to computerized programme trades.
The tech-heavy Nasdaq composite sank 96.65 points (3.86 percent) to 2,407.87 and the broad-market Standard and Poor's 500 index lost 50.33 points (3.47 percent) to finish at 1,399.04.
In London, the FTSE 100 lost 2.31 percent to close at 6,286.10 points, in Paris the CAC 40 shed 3.02 percent to 5,588.39 points while in Frankfurt the Dax fell 2.96 percent to 6,819.65 points.
Earlier in Asia, the Shanghai stock market's composite index had closed down 8.84 percent -- the biggest one-day fall in 10 years.
The fall in the Chinese stock exchange followed a switch in sentiment, with investors appearing to finally heed warnings from regulators that stock prices were vastly overvalued.
Comments from former Federal Reserve chairman Alan Greenspan and rising tension about Iran's nuclear programme also served to undermine investor confidence.
Greenspan had warned on Monday that the US economy had been expanding since 2001 and that there were signs that the current economic cycle was coming to an end.
An investment manager at Meeschaert, Alice Lhabouz, said analysts had interpreted Greenspan's comments as a concerted effort by the Federal Reserve to calm financial markets after recent sharp increases.
An analyst at French brokerage Credit Mutuel CIC, Francois Xavier-Chevallier, commented that Greenspan "thinks that it is better to have a little crisis now rather than a big crisis at a later date."
In London, as well as concerns about the Chinese economy, mining shares were rocked by reports that the South African government was considering imposing a "windfall tax" on the resource industry.
"The FTSE 100 suffered heavy losses under pressure from sliding mining stocks ... after China's main stock index plunged almost nine percent," Sucden analyst Michael Davies said.
Xstrata plummeted 10.28 percent to 2,383 pence in London, BHP Billiton lost 6.16 percent to 1,051 pence and Anglo American shed 4.68 percent to 2,507 pence.
In Paris steel maker Arcelor Mittal dropped 5.61 percent to 38.73 euros.
In Frankfurt, cosmetic and cleaning product maker Henkel led the fallers with a plunge of 5.74 percent to 108.80 euros.
Geopolitical concerns also loomed large over global markets on Tuesday after two members of the US-led coalition and a US contractor died in a suicide blast on Tuesday outside an Afghan base where Vice President Dick Cheney spent the night.
Iran's defiance over its nuclear programme also added to uncertainty after diplomats from six key world powers pledged in London on Monday to work on a new UN Security Council resolution.
DA Davidson market strategist Fred Dickson said global stock markets appeared "ripe for a modest pullback" on Tuesday.
He added: "Right now, the market needs a steady flow of positive fundamental earnings news to reignite a broad scale advance that would take the indices back to new highs."
Neil Mackinnon, chief economist at ECU Group, termed the sell-off on Tuesday "a classic flight to quality."
Tokyo's Nikkei-225 index of leading shares fell 0.52 percent to 18,119.92 points, snapping a three-day winning streak.
Hong Kong's key Hang Seng Index closed down 1.76 percent at 20,147.87 points, dealers said.
Elsewhere in Europe, in Madrid the Ibex 35 fell 3.01 percent to 14,408.3 points, in Amsterdam the AEX lost 2.12 percent to 500.33 points and in Milan the SP/Mib shed 2.88 percent to 41,616 points.
The Swiss SMI index fell 3.4 percent to 8,909.8 points and the Belgian Bel 20 gave up 2.85 percent to 4,390.41 points.
- AFP /ls
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