Rising fears of another recession hammered US stocks this evening, sending major averages sharply lower in a return to the extreme fluctuations investors endured a week ago.

New worries about the health of European banks set the tone before the market's open, and a dismal report on regional US manufacturing fuelled a downward spiral in which the Dow Jones dropped as much as 528 points.

The Nasdaq ended more than 5% lower, the S&P 500 more than 4% and the Dow off more than 3%.

The drops in American markets came after world markets saw similar losses.

Dublin's ISEQ index was down 111.58 points (4.4%) to 2454.64 at the close this evening.

London’s FTSE closed down 4.49%. Germany’s Dax was down 5.5% to 5,628 points, while the Paris CAC dropped 5.48%.

This afternoon Morgan Stanley said its new forecasts showed the United States and the eurozone 'hovering dangerously close to recession.'

The bank cut its 2011 global growth outlook to 3.9% from 4.2%, and the 2012 forecast to 3.8% from 4.5%.

Once again, aversion to risk swept the financial markets, with corporate bonds, industrial commodities and higher-yielding currencies sliding.

Assets viewed as safe-havens - such as gold, government bonds and the dollar - have all gained. Gold rose to its second record high in a week - $1,826 - this afternoon.

The sell-off 'is rooted in the European banking system,' said Jack de Gan, chief investment officer at Harbor Advisory Corp.

'It reflects continued concern that sovereign debt issues indicate we're going to have to bail out all those banks again. And if there's stress in major European banks, it will affect US banks too.

Banking stocks in Paris were particularly hard hit, with BNP Paribas off 8.24%, Credit Agricole down 9.0% and Societe Generale lost more than 12%.

Meanwhile, this week's fresh plans to tackle the eurozone debt crisis have clearly failed to win over investors, who brushed off Tuesday's summit meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel.

Traders also dismissed the pair's proposal for a Europe-wide tax on financial transactions as 'old hat,' likely to be ineffective at best and at worst driving business out of Europe into other centres.

Asian stock markets slid earlier today, with Tokyo down 1.25% to record its lowest finish since March 15 - four days after it was hit by an earthquake and tsunami that spiralled into a nuclear disaster.