Last Updated at 21:09 GMT
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European and US stock markets have suffered more large falls, led by steep declines in banking shares.In nervous trading, the focus turned to France, where the French government denied it would follow the US and lose its top-grade AAA credit rating.
Societe Generale bank, whose shares fell up to 20%, was also forced to deny it was under financial pressure.
France's Cac share index ended down 5.5%. The UK's FTSE lost 3%, and Wall Street's Dow Jones lost 4.6%.
The FTSE fell by 158 points to 5,007, taking £41bn off the value of the index. It has now lost almost 15% in the last nine trading sessions.
Italy's FTSE MIB ended down 6.7%.
Shares in Societe Generale ended 14.7% lower.
UK banking shares were also hit, with Barclays down 8.7%, Royal Bank of Scotland 7.3%, and HSBC 5.3%.
"The banks have all got exposure of some degree or another to sovereign debts," said David Buik, of BGC Partners.
"And none of the banks are going to get away scot-free. There are going to be writedowns."
Downgrade for France?
The more probable reason for the rout in European banks, which has depressed European stock markets and led to contagion on Wall Street, is simply those very basic emotions that afflict investors from time to time (especially recently): fear and capitulation.”
The French government's insistence that it will not lose its AAA credit rating was confirmed by the three main ratings agencies, Moody's, Standard & Poor's and Fitch.But Lyn Graham-Taylor, fixed income strategist at Rabobank, said the markets were right to be concerned that France could lose its AAA credit rating: "We think from a fundamental perspective that France is due a downgrade," he told BBC News.
"In essence, France is the country with a AAA credit rating that can least afford to pay into any future eurozone-wide bail-out scheme."
Earlier, President Sarkozy followed an emergency government meeting by promising France would meet its deficit-cutting target "whatever the developments in its economic situation".
The government will meet again on 24 August to discuss measures to cut its deficit.
The concern regarding Societe Generale and other French banks is about their large exposure to government debt issued by some of the eurozone's weakest states, such as Greece.
A spokewoman for Societe Generale said: "SocGen categorically denies all the market rumours [about its financial stability]." Last Updated at 10 Aug 2011, 15:35 GMT *Chart shows local time
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Shares in fellow French bank Credit Agricole lost 11.8%, while BNP Paribas dropped 9.5%.Calmer morning market conditions had earlier helped the Italian government, whose indebtedness has worried the markets recently, to borrow 6.5bn euros from the market in 12-month bonds at an interest rate of 2.9%, much lower than the 3.67% rate it paid a month ago.
Italian media later reported that the Prime Minister Silvio Berlusconi and his cabinet would meet by next Thursday to adopt a series of measures to try to reduce the government's budget deficit.
Mr Berlusconi and economy minister Giulio Tremonti met business and union leaders earlier to discuss the measures, which are designed to reassure investors that the country is serious about tackling its relatively high debt levels.
Mr Tremonti is expected to address a specially-recalled Italian parliament on the matter on Thursday.
Safety Meanwhile, cautious investors continued to hedge their bets in so-called safe-haven investments, including gold, which hit another new record of record $1,779.14. Last Updated at 10 Aug 2011, 15:35 GMT *Chart shows local time
The Swiss authorities announced measures to try to reduce the value of the Swiss franc, which has also soared as investors seek safe investments, but has been hurting Swiss exporters.
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The afternoon falls put paid to a short-lived rally sparked by an announcement from the US Federal Reserve late on Tuesday, which said it was unlikely to raise in interest rates for two years.
This, along with a pledge of further help to aid the economic recovery, if necessary, gave investors confidence. But the Federal Reserve's statement also painted a bleak picture of the US economy, referring to weaker than expected economic growth, depressed household prices and spending and sluggish unemployment growth.
The fears about the state of the US economy were fanned last week by Standard & Poor's decision to cut the US's credit rating from AAA to AA+ for the first time.
On top of this, the continuing debt issues in Europe have prompted many analysts to revisit their own estimates for both economic and corporate profit growth.