European indices slumped on Monday, with the UK's FTSE 100 falling 2.5 per cent to close at 5689 - its second lowest level since November 2012 and pushing one-year losses above 16 per cent.
Similarly Germany's DAX index fell 3.6 per cent to 4,807, France's CAC 40 fell 3.2 per cent to 4,066, while Spain's IBEX 35 shed 4.4 per cent to close at 8,122.
US markets followed Europe's lead, with the Dow Jones Industrial Average and S&P 500 indices both down more than 1 per cent at the close of Monday trading.
This prompted an even steeper fall in Japanese markets overnight, with the Topix index tumbling 5.5 per cent by close of trading on Tuesday (local time).
This was the index's sharpest decline since the global market sell-off on 24 August, with banks and financial shares leading losses. The Nikkei 225 index dropped 5.4 per cent, its biggest decline since June 2013.
China's market is currently closed for Chinese New Year - a factor that Chris Beauchamp, senior market analyst at IG, argues may be contributing to sell-offs, along with nerves over further interest rate rises in the US.
'Chinese investors will feel relieved that their market has taken the week off, but the absence of the volatility provided by Shanghai sends a worrying message - investors in the US and Europe are worried by many things, not least the current interest rate outlook in the US.
'Recent surveys of fund managers may indicate rising cash balances, but so far these appear to be remaining on the sidelines, pulling the rug from under what remains of this bull market.
'In a week when economic data is relatively light, it is becoming increasingly apparent investors are struggling to find any positive news on which to create a rally,' says Beauchamp.
The sell-off also saw Japan's 10-year government bond rates fell into negative territory for the first time, while the Japanese yen strengthened by 1 per cent against the US dollar, rising to 114.75 - its strongest level since November 2014.
Alastair McCaig, market analyst at IG, comments: 'Any hope investors might have had that the absence of China would enable markets to reduce volatility and rebalance some of the overly bearish sentiment has been quashed by Japan.
'As the USD/JPY currency cross has fallen, so too has the Nikkei, dragging most of Asia with it. The last thing the Bank of Japan wants is the yen strengthening against the dollar - especially as it has introduced negative interest rates.'
In Europe the Greek 10-year sovereign bond yield surged past 10 per cent - an increase of more than 25 per cent in just over one month and 50 per cent up from November. According to McCaig, this 'hints that the EU and eurozone are about to come under attack from two different directions'.
'The eurozone might have found its attention diverted with discussions over quantitative easing and the looming Brexit vote in the UK, but once again it is the countries of southern Europe, especially Greece, that are in the spotlight. The situation in Greece was never resolved, merely delayed until later,' he says.
HOW SHOULD INVESTORS REACT?
On how investors should react to current volatility, Rohan Sivajoti, advisory services director at eVestor, advises against rash action: 'Now is not the time for investors to take knee-jerk decisions with their financial futures. Investing is a long-term commitment and it's important not to panic sell when markets are volatile.
'The FTSE 100's recent falls have been driven by investors' deep concern over the stability and strength of the global economy and the knock on effect this might have in the UK.
'During a period of falling inflation and low wages, the UK could find itself at particular risk of catching the economic epidemic that is spreading across the eurozone.
'It yet again highlights the importance of focusing on what you can control, such as costs and portfolio diversification, while remaining invested for the medium to long term.'
The FTSE 100 began Tuesday on a brighter note, rising by as much 0.8 per cent in morning trading; however, it began to head lower towards lunchtime, accompanied by most European indices including Germany, France and Spain.