Equity markets in London and Europe endured further heavy selling on Thursday following major losses in the US and across Asia as the economic gloom deepened.

Fears that recent financial rescue plans will not be enough to avert a deep and prolonged global recession ensured even some of the traditional safe havens like gold and Japan's yen currency were left exposed to losses.

Those stocks with the greatest exposure to slowing demand were the worst hit. Miners and metal and oil producers lost heavily for a second day as metals and crude prices slid on commodity exchanges. Retailers, luxury brands and leisure and travel stocks took a hit as rising unemployment and slowing business activity tightened consumer spending.

By mid morning in London, most indices had come off their worst levels. The FTSE 100 was down 2.3 per cent to 3,985.5. The 94-point fall, pared earlier losses of 239 points. In Europe, the FTSE Eurofirst 300 fell 2.6 per cent to 880, while Germany's Xetra Dax lost 2.7 per cent to 4,737.66, paring an earlier 6.2 per cent fall.

Overnight in New York, stocks had their worst day since the 1987 market crash after a run of dismal data that showed slowing retail sales and falling economic activity across the US.

Ben Bernanke, chairman of the US Federal Reserve, warned "broader economic recovery will not happen right away", even if bank rescue plans were successful. He added "marked slowdowns in consumer spending, business investment and the labour market" had occured before the latest phase in the financial sector crisis.

The Dow Jones Industrial Average ended down 7.9 per cent and the S&P 500 off 9 per cent.

Losses were also severe in Asia, with the Nikkei 225 Average in Tokyo also recording its worst fall since the '87 crash, tumbling 11.4 per cent. The Hang Seng in Hong Kong lost 7.6 per cent, and Seoul's Kospi shed 9.4 per cent.

In Switzerland, the government took a 9 per cent stake in UBS, ploughing in SFr6bn of capital into the ailing bank, while the country's central bank said it would buy toxic assets worth up to $60bn. Its shares turned around opening losses and rose 2.3 per cent to SFr20.62.

Credit Suisse said it would not need to accept government funds, and instead turned to a small group of large investors, which include sovereign wealth fund Qatar Holding, to raise SFr10bn. The shares were up 0.7 per cent to SFr46.20.

Tui Travel was the worst performing stock on London's FTSE, down 15.6 per cent to 210¾p after German parent Tui said it would not make an offer for the company.

Kingfisher, which operates home improvement retail outlets, led the retail sector lower, falling 6.7 per cent to 110.1p.

The miners and metals producers continued to fall sharply on fears of slowing global demand. Anglo American lost 6 per cent to £12.47 and Rio Tinto shed 5.7 per cent to £22.22. Paris-listed steelmaker ArcelorMittal shed 7.1 per cent to €20.41.

Oil stocks were similarly weak after crude prices fell below $70 a barrel. France's Total shed 6.4 per cent to €34.20, Britain's Royal Dutch Shell lost 4.6 per cent to £12.84 and Portugal's Galp Energia slid 8.3 per cent to €7.53.

The traditional safe havens were no safe bet either. Gold, which is often turned to when stock markets become turbulent, fell 1.7 per cent to $834.60, more than 10 per cent off its most recent peak last week before the bank bail-outs.