The U.S. Treasury backed away from using a $700 billion (457 billion pound) bailout fund to cleanse bank balance sheets of toxic mortgage debt, while Europe reported more gloomy economic news and the World Bank warned that international trade may contract in 2009, Reuters reported.
Secretary Henry Paulson, in the most explicit sign yet that Treasury was abandoning its initial plan for the rescue funds, said on Wednesday he preferred a second round of capital injections into financial companies to help them weather the worst market crisis in 80 years.
"Our assessment at this time is that this (the purchase of toxic assets) is not the most effective way to use funds," Paulson told a news conference.
That added to worries sparked by gloomy economic data from Britain and the eurozone, suggesting the world economy was headed for recession and another round of interest rate cuts.
"We are certainly prepared to cut ... again, if that proves to be necessary," Bank of England Governor Mervyn King told a news conference after forecasting slower British growth and minimal inflation in 2009.
Asian and European stocks fell, while Wall Street dropped 3 percent, dragged down at the opening by electronics chain Best Buy's move to cut its full-year outlook. Oil prices slid further below $60 a barrel.
"Whether it's economic indicators or company news, it's just too awful," said Takashi Ushio, head of the investment strategy division at Marusan Securities in Tokyo.