European stocks ended Tuesday’s session down 2%, their lowest close since October 2005.
Investors are nervous at the possibility of more bank writedowns which hit the financial sector.
Among the biggest losers UBS hit a 10-year low, down 5.3%, while Deutsche Bank lost 4.4%.
Strong oil prices increased inflation fears and energy sensitive stocks, such as airlines and car makers were under pressure.
Of the bigger stock exchanges London suffered most. It was down 2.5% after new figures showed UK domestic property prices sinking and manufacturing contracting.