On Germany's blue chip DAX 30 there were more losers than gainers but at the end of the trading day, it was down 1.7 percent. In Paris, the CAC 40 was down 2.1 percent with shares of Alcatel-Lucent down 8.5 percent and steelmaker ArcelorMittal down 8.1 percent.
The London FTSE 100, which had managed to climb 1 percent, ended up falling 5.4 percent, with Lloyds TSB bank up more than 17 percent on reports that it was in merger talks with HBOS mortgage bank.
Declines were also seen on exchanges in Madrid, where the SMSI slid 2.5 percent and in Stockholm, where stocks dropped 3.4 percent.
In New York, Wall Street plunged again in midday trading as the Dow Jones industrial average fell 346.69, or 3.13 percent, to 10,712.33. The blue-chip index is down more than 5 percent on the week, and has fallen more than 23 percent since reaching a record close of 14,164.53 on Oct. 9 last year.
The downward spiral comes as investors sent global stocks spiraling downward earlier in the week, reacting with alarm to the upheaval on Wall Street that saw investment bank Lehman Brothers Holdings Inc. file for bankruptcy and Merrill Lynch & Co. sell itself to Bank of America Corp.
On Tuesday, the Fed decided to keep its key interest rate on hold at 2 percent, but acknowledged stresses in financial markets have grown. The Federal Reserve also helped allay some fears about the financial system with a $85 billion emergency loan to shore up insurance giant American International Group Inc. Tuesday. The Fed said it acted because a disorderly failure of the company, whose financial dealings stretch around the world, could hurt the already delicate markets and the economy.
But there were lingering fears across the region of more trouble ahead should bank stocks sink further and credit losses continue to pile up.
On Wednesday the Swiss, Japanese and Russian central banks continued to pump more liquidity into financial systems in an effort to keep lending between banks flowing, while the European Central Bank and the Bank of England held off on more short-term lending.
The Fed also pumped $70 billion into the U.S. financial system in the past few days to help ease credit stresses.
In Frankfurt, insurer Allianz SE was up nearly 2.6 percent after it also suffered losses earlier in the week on the prospects that it could profit from some of AIG's woes in the U.S., either by snapping up business or eventually parts of the company.
Barclays Capital bank was 11.5 percent higher on news Wednesday that it would buy Lehman Brothers' North American investment banking and capital markets operations.
"The proposed acquisition of Lehman Brothers North American investment banking and capital market operations accelerates the execution of our strategy of diversification by geography and business in pursuit of profitable growth on behalf of our shareholders, in particular increasing the percentage of Barclays earnings sourced in North America," Barclays Chief Executive John Varley said.
Asian stocks turned in a mixed performance Wednesday, giving up early gains. Japan's Nikkei 225 average added 1.2 percent to 11,749.79 after sinking nearly 5 percent the day before to its lowest finish in more than three years. South Korea's Kospi climbed 2.7 percent and Taiwan's benchmark rose 0.8 percent.
But Hong Kong's blue-chip Hang Seng Index dropped 3.6 percent to 17,637.19, dragged by Chinese banks to its worst close since October 26. China's Shanghai benchmark fell 2.9 percent, while Australia's S&P/ASX 200 shed 0.6 percent.
There were lingering fears across the region of more trouble ahead should bank stocks sink further and credit losses continue to pile up.
"AIG helped stabilize the market earlier, but there could be more turmoil. You don't know who's next to go," said Francis Lun, general manager of Fulbright Securities Ltd. in Hong Kong.
Oil prices rose somewhat Wednesday but were still markedly lower, on the prospects of less future demand and less than expected damage from Hurricane Ike, which was still affecting parts of the U.S. midwest Wednesday. Light, sweet crude for October delivery rose $1.45 to $92.60 a barrel in early trading on the New York Mercantile Exchange.
The euro was down to $1.4126 in late European trading Wednesday from the $1.4156 it bought in New York late Tuesday.
The British pound climbed to $1.7889 from $1.7864, while the dollar fell to 104.65 Japanese yen from 105.82 yen.