The credit market problems remained a constant backdrop as uncertainty again characterised trade on American equity markets. The key stock indexes managed moderate gains early on, but closed significantly lower.
The main measure of US consumer price inflation has come in on forecast, but is causing some consternation.
The Consumer Price Index (CPI) is up 0.3 per cent in October to be 3.5 per cent higher over the year. The underlying rate in the month is 0.2 per cent.
And overnight, the US Federal Reserve has pumped more than $47 billion into US money markets to free up liquidity.
Financial stocks like insurer, American International Group, and banking giant, Citigroup, have come under selling pressure.
On the New York Stock Exchange, the Dow Jones industrial average closed down 121 points at 13,110.
The high-tech Nasdaq composite index has fallen 26 points to 2,619.
The British share market has surrendered all the gains of the previous session. Credit market concerns have hurt the banking sector.
London's FT-100 index lost 72.5 points to 6,360, a slide of 1.1 per cent.
Yesterday in Australia, the banking and resource sectors were the lead in the saddle bags.
The All Ordinaries index slid 56 points to 6,594.
Shares in Woodside Petroleum plunged $3.80 to $48.20 after the company sharply reduced its production forecasts.
But iron ore prospector Fortescue surged $9.67 to $61.20 in response to the company's announcement of a one billion-tonne discovery in the Pilbara.
All four big banks were showing losses, with Commonwealth Bank shares down 85 cents to $60.45.
The overnight session on the Sydney Futures Exchange, saw the Share Price Index 200 contract close down 64 points at 6,516.
The 10-year bond contract is up 5.5 points at 93.9-4, with the implied yield easing to 6.06 per cent.
On foreign exchange markets, the Australian dollar has been sold off heavily.
About 9am (AEST) it was being quoted at 88.63 US cents, down 1.3 cents on yesterday's local close.
On the cross-rates, it was at 60.62 euro cents, 97.81 Japanese yen, 43.36 UK pence, and against the New Zealand dollar it was at $1.174.
The gold price has tumbled around $US25 overnight to $US788.60 an ounce, while West Texas crude oil has eased 65 cents to $US93.37 a barrel. © 2007 Australian Broadcasting Corporation
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