Europe's losses echoed those seen on Wall Street Wednesday and in Asia overnight. The Dow Jones industrial average fell 486.01, or 5.1 percent, to 9,139.27, while the Standard & Poor's 500 index shed more than 5 percent.
It's not expected to get much better later, with stock futures down. Dow futures were down 107 points, or 1.1 percent, at 9,070, while S&P futures were 12.9 points, or 1.4 percent, lower at 945.1.
The losses on Wall Street triggered a renewed bout of selling in Asia with Japan's Nikkei stock average down 6.5 percent at 8,899.14, and Hong Kong's Hang Seng Index 7.1 percent lower at 13,790.04.
"Equities are back in reverse... as traders fail to find any letup in the run of downbeat economic and corporate news," said Matt Buckland, a dealer at CMC Markets.
Stocks around the world have enjoyed a strong rally over the last week or so, partly on relief that the U.S. presidential election was coming to an end.
However, investors know that President-elect Barack Obama will have his work cut out to improve the U.S.'s immediate economic prospects and that Inauguration Day is still more than two months away.
Further proof of the scale of the downturn in the world's largest economy came Wednesday with the news that the U.S. service sector contracted sharply in October as new orders and employment fell. The Institute for Supply Management, a trade group of purchasing executives, says the services sector index fell to 44.4 in October from 50.2 in September. Analysts had anticipated a far more modest drop.
"The honeymoon period for Obama is already proving extremely short-lived, with the run of grim U.S. economic data yesterday highlighting the mammoth task ahead in terms of getting the economy back on its feet," said Mitul Kotecha, an analyst at Calyon.
Despite the underlying concerns about the world economy, Europe's stock markets will be keeping a close eye on how much the European Central Bank and the Bank of England reduce interest rates later.
Both banks are expected to follow the U.S. Federal Reserve's lead and cut interest rates by at least half a percentage point, though there's growing talk that the Bank of England may reduce interest rates by as much as a full percentage point for the first time since four cuts of that size in 1992-3 when Britain's economy was last mired in recession.
"The ECB and BoE rate verdicts do have the potential to provide some cheer, especially if the cuts end up at the more aggressive end of the spectrum," said CMC Markets' Buckland.
Earlier, South Korea's benchmark Kospi index broke a five-session winning streak to dive 7.6 percent. Markets in Singapore, Australia and mainland China also dropped sharply.
Meanwhile, oil prices slipped $0.20 a barrel to $65.10 a barrel. Oil prices have fallen by about 56 percent since peaking at $147.27 a barrel in mid-July.
The euro was 0.4 percent lower at $1.2909, while the dollar was 0.3 percent weaker at 97.84 yen.
AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.