LONDON, England (CNN) -- World stock markets were shaken Thursday as problems facing the ailing U.S. economic juggernaut continued to send ripples of fear through investors.
Wall Street has not been able to maintain the brief resurgence it experienced earlier this week.
The price of gold topped $1,000 an ounce for the first time ever, and investors dumped the dollar which hit a 12-year low against the Japanese yen and slumped to new lows against the euro.
Meanwhile, oil was also continuing its soar skywards, hitting $111 a barrel before sliding back to below $110.
CNN International's Business Editor Todd Benjamin says the activity is all based on the belief that the U.S. is in recession.
Gold futures reached $1,001 on the New York Mercantile Exchange before dropping slightly to $997.10.
In uncertain times, it is seen as a safer bet for investors, and has risen 20 percent this year. See Mallika Kapur's report on the latest spike in gold prices »
Because gold is bought and sold in U.S. dollars, it has also become much cheaper for investors holding overseas currencies -- and central banks around the world have stepped in along with big hedge funds among others.
"What people are looking at now is an asset to preserve some of their wealth," Philip Newman of GFMS Limited told CNN. "They are not looking for gold to give them substantial returns in the medium term, but they're looking for something to give them wealth protection."
Mortgage-bond fund Carlyle Capital, run by the Washington-based Carlyle Group, now expects to go into bankruptcy after missing margin calls on its $21.4 billion portfolio and failing to negotiate survival deals with creditors.
With the U.S. subprime mortgage industry already in crisis, Carlyle's liquidation could help depress that sector of the market even further.
Wall Street predictably suffered on Thursday, with the Dow Jones Industrial Average down 220 pointsat its worst, but the day did end in positive territory -- about 30 points up.
The U.S Federal Reserve stepped in this week, trying to lift confidence with a plan to lend Treasuries in exchange for debt tied to mortgages, but the effects have so far been mixed.
"People have had time to think about the Fed's plan, which is basically to inject $200 billion into the banking system, and said 'Hey -- it's not the panacea that people were thinking it is,'" said Benjamin. Read Todd's blog.
"At the same time, big hedge funds are either failing or not allowing withdrawals as a result of the subprime crisis. And you've got Jamie Dimon, head of JP Morgan, saying the U.S is in recession and -- more importantly -- that financial institutions are only halfway through working through their problems."
Benjamin said he believed that the only way forward was to let the United States go into recession.
"With brush fires, you clear out the underbrush and then you can have some growth again," he said.
"A lot of people will get hurt, a lot of hard-working blue-collar workers, but at some point you have got to draw a line in the sand and let the markets do what they're going to do. And sometimes a recession, as painful as it is, it blows out all the bad that's in the economy."
Wall Street had offered encouragement earlier this week with the Dow Jones climbing 3.55 percent on Tuesday, but the average's slight relapse the next day saw any confidence gained slip away again.
Europe's main markets responded Thursday with steady falls by 1700 GMT: the UK's benchmark FTSE 100 index dropped 1.9 percent to 5,667.5; Germany's DAX slipped 2.4 percent to 6,443.59; and in France the CAC declined 2.5 percent to 4,579.56.
The euro traded for a record $1.5625 before declining to $1.5586.
Earlier, the Asian markets also tumbled.
Japan's Nikkei 225 Index fell 3.3 percent to 12,433.4 -- its lowest in two and a half years -- after the dollar dropped to a 12-year low against the yen.
The weak dollar is bad news for Japanese exporters such as Toyota and Sony, who now find their products more expensive on the overseas markets.
The dollar was worth 122 yen at the start of this year, but has now dropped 18 percent.
"Exporters like Toyota, 58 percent of their sales come from outside of Asia," Benjamin said. "Every one yen fall -- just one yen -- hits their operating profits by close to $350 million. Obviously there's a lot of worry for the exporters and their profit as a result." Watch Benjamin's comments on the effects of the weak U.S. dollar »
In Hong Kong. the Hang Seng Index lost 4.8 percent of its value, while indices in Australia, China, Malaysia, South Korea and Taiwan dropped more than 2 percent. Markets in India and Indonesia, meanwhile, slumped by more than 4 percent.
"This is just an extremely nervous market given the uncertainties overhanging the outlook for the world," David Cohen, a regional economist with Action Economics in Singapore, told the Associated Press.
"The clouds are the combination of the oil prices, the nervousness about the U.S. slipping into recession and dragging down the global economy and ... the turmoil in the credit markets that doesn't want to go away." E-mail to a friend