On Wall Street, the Dow Jones Industrial Average fell 1.57 percent, while the broader S&P 500 dropped 1.50 percent and the tech-heavy Nasdaq Composite sank 1.62 percent.
In Europe, London's FTSE 100 closed 1.01 percent lower, Frankfurt's DAX dropped 2.19 percent and Paris's CAC 40 slid 1.92 percent, adding to the losses from Thursday's brutal sell-off.
Asian markets also took steep falls, with Tokyo tumbling 2.51 percent, Sydney shedding 3.51 percent and Seoul plunging 6.22 percent.
Concerns about faltering growth in the United States and the eurozone's debt crisis have erased more than $7 trillion in value from global stock markets since late July.
"The market continues to be susceptible to negative news headlines, and anything with a hint of negativity is prompting aggressive selling," said Michael James, senior equity trader with Wedbush Morgan Securities.
Gold, a traditional safe haven in times of financial turmoil, surged to a new record high of $1,878.15 per ounce.
On the forex markets, the dollar slumped to a historic low against the yen as the Japanese currency attracted safe-haven flows. The dollar dropped to 75.95 yen, a post-1945 record, before recovering to 76.50.
JPMorgan Chase became the latest bank to reduce its US growth forecasts, cutting its estimate for fourth-quarter growth to 1.0 percent from 2.5 percent and describing the risks of a new recession as "clearly elevated."
Shares of US tech giant Hewlett-Packard plunged 20 percent after it reduced its projected earnings for 2011 and unveiled a broad array of strategic changes, including a plan to spin off its PC business.
Next week, markets will focus on the remote mountain resort of Jackson Hole, Wyoming, for an annual central bankers conference where US Federal Reserve chairman Ben Bernanke is scheduled to speak.
It was at last year's Jackson Hole gathering where Bernanke first proposed the policy now known as "QE2," a second round of so-called quantitative easing in which the Fed injected hundreds of billions of dollars into the US economy, fueling a stock rally.
"Since Jackson Hole was the place where Bernanke signaled QE2 last year, markets will look for any signal of a QE3 this time around," economists at IHS Global Insight said in a research note.
But many analysts believe that Bernanke has few options for staving off a downward spiral and that Washington is too deeply divided to take effective action on the economy.
Also speaking at Jackson Hole will be European Central Bank president Jean-Claude Trichet, whose words are likely to be scrutinized for his assessment of the eurozone's deepening debt crisis.
Fears that the debt crisis will engulf the European Union's major economies rattled the markets this week, despite a much-touted summit between French President Nicolas Sarkozy and German Chancellor Angela Merkel.
"It really comes down to hearing something from the EU to finally put this sell-off to rest," said Marc Pado, chief US market strategist for Cantor Fitzgerald.
"The market is waiting for the EU and the ECB to come up with a plan dealing with the crisis."
Stock markets will pick up once investors feel that they have hit bottom and start combing through the wreckage for bargains, analysts said.
"No panic lasts forever," said Holger Schmieding of Germany's Berenberg Bank, noting that the 1987 sell-off lasted four weeks and the 2008 crisis played out over six months.
Despite the concerns about Europe, the dollar lost ground against the euro on Friday. It was trading at $1.4398 against the euro at 2100 GMT in New York, compared to $1.4337 at the same time Thursday.
The dollar weakened against the safe-haven Swiss franc, falling to 0.7849 francs from 0.7936 late Thursday.
But it strengthened against the British pound, as the pound fell to $1.6469 from $1.6520 a day earlier.
Copyright APP (Associated Press of Pakistan), 2011
Copyright AFP (Agence France-Presse), 2011