"For some time now investors have been looking at the unfolding currency crisis in Turkey as a local difficulty," noted CMC Markets UK analyst Michael Hewson.
"However, the accelerating speed of the declines appears to be raising concerns about European banks' exposure to the Turkish banking system."
The lira was buffeted by a diplomatic row between Ankara and Washington, with Turkish President Tayyip Erdogan's attempts to talk up the currency having exactly the opposite effect.
"The plunge in the lira which began in May now looks certain to push the Turkish economy into recession and it may well trigger a banking crisis," said Andrew Kenningham, chief global economist at Capital Economics.
European banking stocks plunged, the euro weakened while demand for safe haven assets like gold and the Swiss franc picked up as analysts realized the lira's plunge was not just a local Turkish problem.
But neither should global investors over-react, Kenningham said, noting that Turkey accounts for just one percent of the world economy, slightly less than the Netherlands, making it not much of a risk to the world economy, or even the eurozone.
Still, analysts said the lira's plunge of 16 percent against the dollar -- and at one point nearly 20 percent -- was dramatic, with analysts struggling to recall when they last saw anything like it.
"The last time I can remember a currency exploding into a similar acceleration of weakness to what we have seen in the past 24 hours is the Russian ruble crisis that transpired late in 2014," said Jameel Ahmad, head of currency strategy at FXTM.
And the fall may not be over.
The European single currency meanwhile tumbled to its lowest level in a year on concerns about eurozone exposure to the crisis in Turkey.
- Bank stocks plunge -
Concerns were amplified Friday by a report in The Financial Times that the supervisory wing of the European Central Bank (ECB) had over the last week begun to look more closely at eurozone lenders' exposure to Turkey.
The report said the situation is not yet seen as "critical" but Spain's BBVA, Italy's UniCredit and France's BNP Paribas are regarded as particularly exposed.
More evidence that emerging currencies were having a bad day came from Russia, where the ruble dived again on Friday and is now down five percent since Wednesday, when the United States hit Russia with new sanctions over its alleged involvement in a nerve agent attack in Britain.
Key European equity markets were down by up to two percent at the closing bell, with shares in banking giants BNP Paribas and Societe Generale more than three percent lower in Paris and Commerzbank and Deutsche Bank losing around four percent in Frankfurt.
Meanwhile on Wall Street all three major indices fell sharply, leaving the Dow and S&P to end the week at a loss.
- Key figures at 2100 GMT -
Dollar/Turkish lira: UP at 6.43 lira from 5.55 late Thursday
Euro/Turkish lira: UP at 7.34 lira from 6.40
New York - Dow Jones: DOWN 0.8 percent at 25,313.14
New York - S&P 500: DOWN 0.7 percent at 2,833.28 (close)
New York - Nasdaq: DOWN 0.7 percent at 7,839.11 (close)
London - FTSE 100: DOWN 1.0 percent at 7,667.01 points (close)
Frankfurt - DAX 30: DOWN 2.0 percent at 12,424.35 (close)
Paris - CAC 40: DOWN 1.6 percent at 5,414.68 (close)
EURO STOXX 50: DOWN 1.9 percent at 3,426.28 (close)
Tokyo - Nikkei 225: DOWN 1.3 percent at 22,298.08 (close)
Hong Kong - Hang Seng: DOWN 0.8 percent at 28,366.62 (close)
Shanghai - Composite: FLAT at 2,795.31 (close)
Euro/dollar: DOWN at $1.1421 from $1.1527 at 2100 GMT
Pound/dollar: DOWN at $1.2789 from $1.2824
Dollar/yen: DOWN at 110.58 yen from 111.08 yen
Oil - Brent Crude: UP 93 cents at $73.00 per barrel
Oil - West Texas Intermediate: UP 95 cents at $67.76