The market falls come just a week after a similar warning from giant US telecoms equipment maker Lucent sent stock markets worldwide into a tailspin.

European markets at close

London's FTSE down 1% Germany's Dax down 1.8% France's Cac down 1.7%

On Wall Street the Dow Jones index ended down 1.5%, and the tech-based Nasdaq index slid 3% lower.

Technology firms helped drag down leading indexes in London, France and Germany.

And in Japan, Tokyo's benchmark Nikkei index closed down 3.36% as investors feared a prolonged period of stagnation across the sector.

Tech contagion

By the close of trade in New York, the Dow Jones Industrial Average was down 144.55 points at 9,561.57, while the Nasdaq index - which is dominated by tech-sector companies - dropped 46.12 points to 1,496.84.

The gloom was caused by grim warnings about future profitability from tech firms after the US markets closed on Tuesday.

US computer firm Apple cut its revenue forecasts late for the April to June period, while giant US computer-chip maker AMD said it would make a "substantial operating loss" in the final three months of its financial year.

Wall Street was also unsettled by the suicide bombing in Jerusalem on Wednesday.

"We had a couple of fresh blows overnight from AMD and Apple and this bombing in Israel is very ugly," said David Memmott at Morgan Stanley.

Asia shares in freefall

Japan's Nikkei -3.4% Korea's Kospi -4% Taiwan's Taiex -2.5%

Adding to the misery for tech stocks, another giant US chip maker, Micron, said it was being investigated by the US Justice Department.

Micron said it was told the inquiry is part an industry-wide investigation into anti-competitive practices in the struggling semi-conductor industry.

Recovery fears

Global stock markets have been volatile over recent weeks, swung by investors fretting over the pace of the US economy recovery.

On 14 June stock indexes around the world had recorded some of their biggest falls since the terrorist attacks of 11 September.

"The pick up in demand won't be realised early next year, which makes it hard to expect a recovery scenario," said Dai Nishiyama of SG Yamaichi Asset Management in Tokyo.

Experts have been gradually pushing their forecasts for the timing of a recovery further into the distance.