The hard-pressed banking sector -- in the front line as turmoil sweeps through markets worldwide -- was hit hard again.

Shares in Dutch bank ING fell over 12 per cent in Amsterdam in reaction to Thursday night's axing of 1,200 staff, while UBS stock slipped on news of top-level resignations after last week's huge hedge fund-related losses.

"I feel ill when I look at these prices. In July you had to pay 160 marks for Deutsche Bank shares, now they cost 80 marks," one Frankfurt dealer said. "We need private investors to come back in."

Frankfurt bourse trading was dominated by a sharp fall in industrial group Daimler-Benz AG. Its shares fell over 11 per cent after Standard & Poor's said it would not put DaimlerChrysler -- its future merger with US carmaker Chrysler -- into its S&P 500 Index ofleading US stocks.

London's leading FTSE 100 index slumped to its lowest level since mid-November amid a general European share selloff.

Milan was left as one of the few major European bourses still above its end-1997 closing level as blue-chip indices across the board lost a further three to five per cent in value, with selling in Athens sending the local index down around seven per cent.

The drop followed two previous days of sharp falls, a 2.7 per cent decline on the Dow Jones Industrial Average overnight and falls of between seven and nine per cent on Latin American bourses.

A slightly positive close on the Nikkei in Tokyo, up 0.2 per cent at 13,223, was not enough to calm nerves in Europe.

Investors were still worried that a rapidly spreading credit crisis could trigger more corporate bankruptcies. Japan's August unemployment rate reached a record high of 4.34 per cent.

Japan's finance minister Kiichi Miyazawa said he wanted early implementation of planned controls on short-selling ofstocks.

Some hopes were pinned on positive news emerging from the weekend meeting of the Group of Seven industrial nations in Washington.

"We're hearing comments already that industrialised countries should lower interest rates, cut taxes, to prevent a worldwide depression. That's what the market's counting on -- it's hoping for a strong signal," one equity strategist in Paris said.

Others doubted that government actions would stop the global equity rout that has levelled global markets.

"What can they do?" said Masayuki Nishina, a trader at New Japan Securities in Tokyo. "Japan and the US have already lowered interest rates."

A raft of US jobs and unemployment data due at 1230 GMT might give some hints for the future direction of US interest rates, said traders.

The dollar hit fresh 19-month lows against the mark and 20-month lows against the Swiss franc under pressure from the further drop in US stocks and ongoing worries over the US economy's vulnerability to global market turmoil.

"Thedifficulty the dollar is facing at the moment relates to the very shaky state of world equity markets, it really does paint a poor picture for the dollar in the short-term," said Brian Martin, analyst at Barclays Capital in London.

Leading government bonds continued to benefit from their perception as islands of safety amid fragile markets, with yields narrowing to record lows.

Traders said there was no end in sight for the rally in bonds as a steady flow of unsettling news kept safe-haven buying flowing.

"First we've had Asian crisis, then Russia, then Latin America and now it's the hedge funds story, it seems there's no end of bad news and problems are just getting worse," one Frankfurt trader said.

Also rising while shares fell was gold, which pushed above $301 per ounce for the first time since May.

Swiss shares were lower after UBS announced the resignation of chairman Mathis Cabiallavetta and other senior executives after the 950 million Swiss franc ($700 million) loss it suffered by investingin US hedge fund Long Term Capital Management.