Some European markets made early gains but these were eroded as investors digested the wave of selling around the world which sent Wall Street tumbling 3.17 per cent, Brazil's Bovespa index slumping 15.8 per cent and Tokyo's Nikkei 225 down 5.11 per cent. The markets' uncertainty and fears that the Clinton sex scandal could lead to the president's impeachment battered the dollar, pulling it to 16-month lows against the mark.

Madrid stocks had the roughest ride in Europe. The Spanish bourse dived 5.5 percent, before regaining some ground, dragged down by companieswith heavy Latin American exposure. Worries about devaluations in South American countries were a strong factor in the market.

In Hong Kong, the Hang Seng index fell 271.48 points, or 3.46 per cent, to finish at 7,578.48 after touching a low of 7,538.60 points. "Wall Street dived overnight and stocks in the South-east Asian region were lower, especially in Japan, and that affected sentiment," said Percy Au-Young, sales director DBS Securities.

Tokyo's benchmark Nikkei average posted its biggest point-loss of the year to close below the significant 14,000-point level, down 749.05 points, or 5.11 per cent, at 13,916.98. Wall Street stocks, which have been the lynch pin for world equity markets, dropped more than three per cent on Thursday amid worries that Clinton may resign or face impeachment. The dollar dropped more than six yen at one stage during the Tokyo session to around 128 yen as US jitters swept the foreign exchanges. The US currency later recovered some ground and was traded at 131.25yen.

South Korean stocks fell more than five per cent as profit taking on blue chips intensified after Thursday's rally, brokers said. The Korea Stock Exchange composite index closed 5.41 per cent, or 18.34 points, lower at 320.61. Share prices in Kuala Lumpur fell further due to profit-taking and in response to Prime Minister Mahathir Mohamad's comment that a capital gains tax was being considered for stocks trading. The Malaysian Composite Index was down 3.07 per cent or 11.67 points to 368.53.

London was one of the weakest performers, falling below the key psychological 5,000 points level on the blue-chip FTSE index at one point with investors jittery over the prospect of another turbulent day on Wall Street. The FTSE fall knocked as much as 26 billion pounds ($43.91 billion) off the value of leading British shares.

The European markets were dogged by anxiety that Clinton's troubles and global economic turbulance would send Wall Street into a tailspin when it opened later on Friday. December futureson the S&P 500 index traded down 1.2 points at 977.8 by midday, suggesting sharp losses at the opening for the Dow Jones Industrial Average. US legislators were due to vote on Friday to post material from a report by independent counsel Kenneth Starr on the Internet, a report which Starr's office said contains "substantial and credible" information that may lead to Clinton's impeachment.