A slump in monthly US industrial production figures on Thursday sparked renewed fears that the global economy could be heading for a prolonged recession and led to sharp falls for equity and commodity markets around the world.

US shares reversed a positive opening after a report from the Federal Reserve showed industrial production suffered its biggest monthly decline in September since 1974.

A survey of manufacturing activity in the Philadelphia region showed that October was the worst month for 18 years added to the negative sentiment.

The Dow Jones Industrial Average was nearly 250 points lower or nearly 3 per cent at 8,340.16. The S&P 500, which registered its biggest one-day fall since 1887 in the previous session, was down 2.2 per cent 887.78.

The FTSE 100 in London was down 4.5 per cent and heading for a fresh 5½ year low below 4,000 as resource stocks once again suffered heavy losses.

The Xetra Dax in Germany was more than 4 per cent lower at 4,655.91 and the CAC 40 in Paris was down nearly 6 per cent 3,188.08.

Japanese equities had their worst one-day decline since the 1987 stock market crash, leading the rest of the region steeply lower as worries about a global recession intensified amid deteriorating economic data.

Commodities prices extended their falls, with crude oil in New York approaching the $70 a barrel level and copper, the base metals bellwether, tumbling to a 34-month low on concerns that the previously booming global construction business is coming to a halt.

The Baltic Dry Index, a benchmark for shipping cost seen as an indicator of global economic activity, fell 6.75 per cent on Thursday to 1,506 points, its lowest level since November 2002. The index has plunged 53.2 per cent since the end of September.

The average daily cost for the largest dry bulk vessels - known as Capesize and used mostly to ship iron ore from Brazil and Australia to China - on Thursday sunk 11.4 per cent to just $11,580 a day.

In the currency trading emerging markets were the main casualties. The South Korean won and the Turkish lira were under significant pressure but the florint recovered some of Wednesday's losses after the European Central Bank agreed to lend the Hungarian government €5bn.

The dollar was mixed against major currencies early in New York, with the greenback standing flat at $1.3472 against the euro, easing 0.4 per cent to $1.7223 against the British pound but rising 0.4 per cent to Y100.20 against the yen.

The focused also remained on banks after the Swiss government took a 9 per cent stake in UBS, ploughing in SFr6bn of capital into the ailing bank, as the country's central bank said it would buy toxic assets worth up to $60bn. Its shares turned around opening losses and rose 3.7 per cent to SFr20.98.

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 6.8 per cent to SFr49.10.

In the US, Merrill Lynch, which last month accepted a takeover bid from Bank of America, reported a third-quarter loss of $7.5bn on write-downs and credit losses on complex debt securities, and Citigroup reported a fourth straight quarterly loss.

Interbank lending rates continued to edge lower after efforts by governments and central banks to tackle the crises in the global finance industry.

The rate at which banks lend to each other, measured by overnight dollar Libor, fell from 2.14375 per cent to 1.9375 per cent, closer to the Fed funds target rate of 1.5 per cent. Three-month dollar Libor eased from 4.55 per cent to 4.5025 per cent.

But the spread between the London interbank offered rate and the overnight interest swaps continued to widen on expectations of further interest rate cuts.

In the commodities, market crude oil prices fell further towards $70 a barrel, a day after falling 50 per cent below its peak. In midday trading in London, Nymex November West Texas Intermediate fell $2.25 to $72.79 a barrel. Earlier it hit a 13-month low of $71.21 a barrel. ICE November Brent fell $3.14 to $67.66 a barrel.

Olivier Jakob, of Swiss-based consultant Petromatrix, said: "If the global markets are not able to provide a 'V-shaped' recovery and global deleveraging continues, the [oil price] risk for the next 30 days is clearly skewed to the downside."

Base metals also extended their losses, with copper for delivery in three months at the London Metal Exchange dropping 3.5 per cent to $4,650 a tonne. Earlier, copper fell to $4,545 a tonne, the lowest level since January 2006.

Lead dropped 5.5 per cent to $1,415 a tonne while zinc tumbled 7.2 per cent to $1,206 a tonne.

Spot gold prices in London were $10 down to $835.15 a troy ounce as investors worried about a global recession sold commodities baskets products that, among other raw materials, include bullion.