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Key share indexes in India and China both fell 3% while Japan's main index fell for its ninth consecutive day for the first time in four years.
In Europe, the FTSE 100 fell 2% while Paris and Frankfurt saw similar losses.
Lack of confidence also hit US markets, with the Dow Jones Industrial Average opening down more than 100 points.
Banking and airline shares were especially weak, the former hit by talk of further sub-prime related losses.
Bank rumours
Swiss bank UBS, which has been one of the biggest victims of the widespread financial crisis caused by the US housing slump, reshuffled its management on Tuesday.
This sparked speculation that the firm, which has announced plans to cut more than 5,000 jobs, could be set to announce further losses from failed mortgage-backed investments.
It has already incurred losses of more than $37bn.
"There is more concern coming back in on the banking sector again," said Andrea Williams, head of European equities at Royal London Asset Management.
"There are a lot of rumours about writedowns."
In London, the FTSE 100 index was down 140.7 points at 5,485.2 by early afternoon.
Banks and airline stocks were particularly weak, with British Airways down nearly 5% after oil prices rebounded back above $142 a barrel.
Air France shares fell 3.4% in Paris, contributing to a 105.31 point drop in the benchmark Cac 40 index to 4,329.54.
In Frankfurt, the Dax index was down 131.71 points at 6,286.61.
Earlier, Asian stock markets were hit by concerns that rising inflation, stoked by higher prices for oil and raw materials, would eat into company profits and slow economic growth.
In India, where inflation is at a 13-year high, the main Sensex index in Bombay slid 3.7% to 12,961.68. Shanghai's main index. meanwhile, fell 3.1% to 2,651.6, a 16-month low.
"We haven't hit the bottom yet," warned Zhang Xiuqi, from Guotai Junan Securities.
"That is because investors are still pessimistic at this point."
Losses in Japan were limited despite the closely watched Tankan survey of corporate prospects showing that business confidence had fallen to a five-year low.
(BBC)
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