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World stocks fell towards this week's 21-month low and the dollar approached a record low versus the euro on Wednesday as investors nursed acute worries about the financial sector.
U.S. crude oil fell further after posting its biggest one-day drop on Tuesday since 1991, when prices tumbled at the start of Operation Desert Storm.
But any support for risky assets quickly evaporated as investors started selling bank and other stocks, fearing the credit crisis could spur more bank failures.
Such fears, prompted by troubles in U.S. mortgage firms, intensified after Federal Reserve chief Ben Bernanke said financial markets remained under considerable stress and the economic and inflation outlook was unusually uncertain.
"We've had the problems in the United States with IndyMac and Freddie and Fannie, so plenty of news but nothing very specific on policy that is addressing the core issues," said Colin McLean, managing director of SVM Asset Management in Edinburgh.
This week's U.S. bailout plan for mortgage giants Fannie Mae and Freddie Mac and an emergency U.S. rule on Tuesday to limit certain types of short selling in financial firms also failed to stem selling.
The FTSEurofirst 300 index was down 1.4% while MSCI main world equity index fell 0.5% on the day, inching closer to the previous day's low.
U.S. stock futures were pointing to a weaker open on Wall Street later.
ON KNIFE EDGE
The dollar was down 0.1% to $1.5935 per euro after falling as low as $1.6038 on Tuesday.
The rule on short selling issued by the U.S. Securities and Exchange Commission, which aims to clamp down on market manipulation that some blame for the sharp declines in financial stocks, will go into effect on Monday, July 21.
"This SEC story is something that the market is focusing on, and if it actually proved successful in stabilising the financials, it will also help stabilise the dollar," said Paul Mackel, strategist at HSBC.
"But the dollar is still on a knife edge and the sentiment is still very, very poor."
Emerging sovereign bond spreads widened 1 basis point while emerging stocks fell 0.5% to hit a new low for 2008.
The September Bund future rose 25 ticks, underpinned by investor jitters over the economy.
U.S. light crude was down 1.4% to $136.76 a barrel after dropping as low as $135.92. Gold ticked higher to $974.40 an ounce.
