The FTSE 100 index of leading British shares was down 87.46 points, or 2.2 percent, at 3,918.22, while Germany's DAX was 145.17 points, or 3.3 percent, lower at 4,208.92. The CAC-40 in France was 111.98 points, or 3.6 percent, lower at 2,975.91.
Earlier, Tokyo's benchmark Nikkei 225 average slid 570.18 points, or 6.9 percent, to 7,703.0 as figures showed exports in October sank 7.7 percent, the biggest decline since 2001, causing the country - an export powerhouse - to report a rare trade deficit.
The losses in Europe and Asia come in the wake of a 427 point, or 5.1 percent, slide in the Dow Jones index of leading U.S. shares. The broader Standard & Poor's 500 index also slid 6.1 percent to 806.58. Both closed at their lowest levels since March 2003.
Wall Street appeared poised for another bout of selling. Dow futures were down 92 points, or 1.1 percent, to 7,935, while S&P futures were down 12.6 points, or 1.6 percent, to 799.9.
"Alongside the dismal outlook painted by leaders in the U.S. automotive industry, growing fears surrounding the drastic rate of disinflation across the globe and renewed fears for the U.S. banking sector, this has sent investors scrambling for cover once more," said Neil Mellor, an analyst at Bank of New York Mellon.
The uncertainty facing companies around the world was evident after U.S. consumer prices fell 1 percent last month, the largest amount in the past 61 years. While beneficial to consumers, lower prices hurt corporate profits and raise the threat of deflation.
So far, Japan, Hong Kong and European countries including Germany and Italy are officially in recession and most expect the U.S. and Britain to be joining them soon, whatever fiscal stimulus policy-makers come up with in the coming days and weeks.
Businesses have been quick to respond to the gloomy outlook by cutting jobs. Most notably, Citigroup said Monday that it is cutting 53,000 jobs around the world.
In Japan, Isuzu Motors Ltd. fell 17 percent after the truck maker said it will cut 1,400 contract workers as it scales back production for this fiscal year. Isuzu is the latest automaker to announce production cuts, joining domestic rivals such as Toyota Motor Corp. and Honda Motor Co.
In Britain, aircraft engine maker Rolls-Royce PLC said it plans to cut up to 2,000 jobs next year as demand for its products slumps amid the global economic downturn.
"We've gone past the poor sentiment stage," said Miles Remington, head of Asian sales trading at BNP Paribas Securities in Hong Kong.
"People are looking for any kind of positive and there are just no positives out there. Everyone seems to be united in the depressed global outlook," he said. "Whether it's commodities or equities, everything seems to be on a downturn."
Elsewhere in Asia, South Korea's main index fell for its eighth straight session, losing 6.7 percent to 948.69, as the country's currency, the won, fell to its lowest level in more than a decade. Hong Kong's Hang Seng benchmark sank 517.24 points, or 4 percent, to 12,298.56.
In Australia, the main stock measure retreated 4.2 percent as weakening commodity prices dragged down the country's resource giants - BHP Billiton and Rio Tinto were both down 9 percent or more.
Compared to the rest of Asia, mainland China's markets suffered modest losses, after speculation over a possible deal by Disney to build a long-awaited theme park in Shanghai boosted property shares. The benchmark Shanghai Composite Index fell 1.7 percent.
The gloomy global economic outlook has taken its toll on oil prices, which have fallen to their lowest in nearly two years. Light, sweet crude for December delivery was down $1.32 at $52.30 a barrel in mid-morning London trade. Overnight, the contract retreated 77 cents to settle at $53.62 a barrel on the New York Mercantile Exchange, the lowest since January 2007.
The dollar weakened 0.6 percent to 95.31 yen, while the euro edged was steady at $1.2513.
AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.