The tumble came just as international markets were recovering from sharp declines earlier this month amid concerns about overvalued stocks and a slowdown in the U.S. economy. Those worries resurfaced as troubles at U.S. subprime mortgage lenders and lackluster retail sales pushed the Dow Jones industrials down nearly 2 percent Tuesday, sparking sell-offs across Asia and Europe.

Britain's benchmark FTSE 100 lost 1.6 percent to 6,062.00. Germany's DAX dropped 1.7 percent to 6,509.34, while France's CAC 40 fell 1.5 percent to 5,351.78.

U.S. stocks fluctuated in early trading, with the Dow edging in and out of positive territory.

Saxo Bank analyst Torben Krogh Nielsen warned that equities could hit a new trough by the end of the week.

"U.S. subprime woes are mushrooming. It's hard to believe they'll be contained and not impact the broader U.S. — and by extension, the global — economy," Krogh Nielsen said.

He said another drop of 5 percent to 10 percent in global equities was likely in coming sessions and that coupled with the concurrent expiration of stock options, index options, index futures and single stock futures, it could be even more frightful.

ASIAN STOCKS TUMBLING

Stocks in Japan, Hong Kong, South Korea, Malaysia and Australia all fell at least 2 percent, while shares in India, Singapore and the Philippines tumbled more than 3 percent.

On the Tokyo Stock Exchange, Asia's biggest bourse, the benchmark Nikkei 225 index sank 501.95 points, or 2.92 percent, to finish at 16,676.89 points. Foreign investors who bought up stocks during the market's recent recovery led the selling, traders said.

Hong Kong's Hang Seng index fell 2.6 percent, Indian stocks dropped 3.3 percent, while Philippine stocks plunged 3.4 percent.

The Dow fell 242.66 points, or 1.97 percent, on Tuesday to 12,075.96 amid concerns about problems at U.S. subprime lenders, who provide mortgages to people with poor credit. Their difficulties raise larger concerns about the housing market and the outlook for the broader U.S. economy.

The U.S. Commerce Department also said sales at retailers rose a less-than-expected 0.1 percent in February, suggesting consumer spending might be waning.

"The U.S. subprime concern has cast a great shadow on Asia. The worry is that it could spill over and cause the U.S. economy to slow down, and this will cause a domino effect on the world economy," said Lee Cheng Hooi, technical analysis manager at EON Capital in Kuala Lumpur. "There could be more bloodbath to come."

'CONTINUED NERVOUSNESS'

Still, other analysts maintained that Asia's economic fundamentals remain strong and that the recent round of declines in stock prices were more likely a correction to cool markets that had risen too far too fast over recent months.

"The sell-off is in sympathy with the sharp sell-off we saw overnight on Wall Street, and it highlights the continued nervousness out there," said David Cohen, chief of Asian economic forecasting at Action Economics in Singapore.

"In perspective you could still say that this is a correction after the strong rally that was experienced for the previous several months around the world," he said.

While the U.S. retail sales data and mortgage news that prompted the sell-off on Wall Street "are a little concerning," fundamentals such as strong U.S. jobs data released Friday were still supportive of global equities.

"The world economy seems to be remaining on an upward trajectory," Cohen said.

The slump reversed a modest recovery in global markets from even bigger losses that started late last month with a 9 percent drop in Chinese stocks Feb. 27, which contributed to a 416-point drop in the Dow later that day.