A rout in Asia pushed world stocks to their lowest in 5-½ years on Thursday, while oil fell to below $53 a barrel.
Safe havens such as the yen gained as economic data indicated a global recession could get even uglier.
Central banks may respond with another wave of rate cuts. The US Treasury two-year yield hit a record low at one point, while other regional bonds such as in Japan surged amid the turbulence.
Investors are bracing for tough conditions ahead after the latest bearish signals for the global economy: The Federal Reserve slashed its US growth forecasts, US consumer prices fell at a record pace last month, and Japan's October exports fell by the most in seven years.
The bleak outlook, which is hitting sectors from South Korean chip makers to US auto makers, comes amid renewed worries about the financial system. Citigroup shares tumbled to a 13-year low on Wednesday as investors questioned its survival prospects on concerns about mounting losses from credit cards, mortgages and toxic debt..
"Everybody is accepting the fact that we are in for a prolonged global recession and we are seeing a lot of pullbacks," said Lucinda Chan, a division director with Macquarie Equities in Australia.
Like dominoes, Asian markets fell a day after US stocks hit their lowest in more than five years. The MSCI All-Country World Index fell 1.2 percent as of 0330 GMT, having hit its lowest level since May 2003.
Japan's Nikkei average dropped 5 percent, below the key technical level of 8,000 points for the first time in three weeks.
South Korean and Hong Kong shares tumbled more than 5 percent, while markets in Sydney, Singapore and Taiwan fell more than 3 percent each.
More broadly, the Asia-Pacific ex-Japan MSCI index was down nearly 5 percent.
Expectations for a sharp slowdown sent oil prices down for a fifth consecutive session, and down 83 cents to $52.79.
"The lack of any positive news on the demand front as well as continued global economic turmoil continue to result in a dearth of bullish news," said Jonathan Kornafel, Asia director of Hudson Capital Energy. Oil on Wednesday fell to its lowest settlement since late January 2007 for a commodity that just in July hit a record high at about $147 a barrel.
Investors are finding plenty to worry about. Federal Reserve officials on Wednesday pared their outlook for growth in the world's biggest economy to minimal levels and appear poised to cut interest rates further.
The weaker forecast came on a day in which data showed US consumer prices in October posted their biggest drop since monthly records began in 1947, sparking concerns about a deflationary spiral.
The sharply weaker global growth bodes ill for Asian economies that need healthy overseas demand for their products. Japan on Thursday said exports logged their biggest annual decline in seven years in October.
Regional bonds were highly sought as investors looked for relative safety. The 10-year Japanese government bond yield fell 2 basis points to 1.445 percent after dropping earlier to 1.430 percent, the lowest since early October. - Reuters