Wall Street trading ended 3% down after big falls in London and Asia sparked by fears of global recession and a wave of profit warnings.
The Dow Jones Industrial Average lost more than 500 points just minutes after trading began - but rallied before markets closed.
Earlier, worse than-expected figures showing Britain is only months away from a recession sent the London markets into another tailspin.
The FTSE100 index fell 9% before closing at 5% down.
It followed official data showing the UK economy contracted by 0.5% between July and September.
The dismal data marked the first period of negative growth in 16 years and was the biggest since 1990.
The pound had slumped to a five-year low against the dollar at the news. It also fell markedly against the euro.
The FTSE's decline began after a third successive day of heavy losses in Asia which saw Japan's Nikkei fall 9.6% to a five-and-a-half year low.
The flurry of selling there followed revised earnings forecasts from electronics giant Sony fuelled fears of a global recession.
CMC Markets trader Matt Buckland said: "Volatility and uncertainty seem to be the watch words at the moment."
In Japan, investors dumped stocks after the dollar sank to a 13-year low against the yen, adding to worries about Japanese export earnings.
The market largely ignored the Dow Jones' overnight rise on Wall Street.
In South Korea, trading was suspended for five minutes due to severe changes in stocks and futures prices.
