World stocks sank sharply for a 10th session running on Tuesday, racking up a 20 percent loss since early May, and gold hit another record high as investors continued to dump riskier assets in highly volatile markets.
Focus was on a meeting of the U.S. Federal Reserve later in day, with investors likely to scour for hints about any new monetary stimulus programme with fears of a new global downturn growing.
Higher-than-expected inflation data from China added to investor concerns, with the United States slowing and its credit rating downgraded, and Europe reeling under a debt crisis.
There was some easing of the latter, however, with Italian and Spanish government bond yields falling as investors anticipated more buying by the European Central Bank.
MSCI's all-country world index was down 1.5 percent, and has now shed 20 percent since peaking in May. The market rule of thumb is that a fall of that magnitude constitutes a bear market.
Emerging market stocks lost 3.3 percent.
Not even in the global financial crisis did we see this extraordinary volatility, said RBS Australia's head of Sydney sales trading, Justin Gallagher.
European bourses put in a short-lived attempted at gains at the open, but succumbed to the overall mood. The FTSEurofirst 300 index of top European shares was down 3.5 percent, losing ground for the eighth session in a row and hitting a two-year low.
Gold posted another record high as investors sought some haven for their money. It was up 2 percent at more than $1,750 an ounce. It gained more than three percent on Monday.
Markets are now worried about another global recession. Out of Europe, French bond yields have widened on expectations of sovereign debt downgrade because of the country's exposure to peripheral European debt, said Natalie Robertson, a commodities strategist at ANZ.
German business daily Handelsblatt quoted Moritz Kraemer, head of the European sovereign unit of Standard & Poor's as saying the rating outlook for Britain and France was stable and he did not expect to downgrade them within the next two years.
SAFETY IN SWITZERLAND?
The Swiss franc hovered near all-time highs against the euro in a flight to supposed safety. The dollar, meanwhile, strengthened versus commodity currencies.
Analysts expected currencies with deeper liquidity to stay in favor in a predominantly risk-off environment.
Liquidity matters in the current environment so the Swiss franc, the yen, the dollar and to some extent the euro will remain well supported, They are large and liquid and don't have the stretched positioning associated with carry currencies such as the Aussie, Kiwi and the Nordics, said Raghav Subbarao, currency strategist at Barclays Capital.
The dollar was down a quarter of a percent against a basket of currencies.
On bond markets, Italian and Spanish government yields fell. Italian 5-year government bond yields were 26 basis points lower at 4.32 percent, with 10-year yields 20 bps lower at 5.13 percent.
Spanish 10-year yields were 17 basis points lower at 5.040 percent.
(Additional reporting by Neal Armstrong and Natsuko Waki, editing by Mike Peacock)