(CNN) -- Stock prices suffered steep losses Friday as dire recession forecasts drove the global financial system into one of its most sickening downward lurches since the credit crisis began.
According to early tallies, the Dow Jones industrial average fell 312 points, or 3.6 percent.
The Dow slumped as much as 504 points in the morning but came back to within 112 points of breakeven in the final hours before falling back.
The Standard & Poor's 500 index fell 3.5 percent and the Nasdaq composite slid 3.2 percent. All three indexes closed at five-year lows.
"The selling today is the result of the broad weakness overseas," said Michael Sheldon, chief market strategist at RDM Financial Group.
European and Asian markets also took a battering.
In Britain, where the government said Friday its economy had shrunk to the brink of recession in the third quarter of 2008 -- news that sent the pound plunging against the dollar -- the FTSE 100 dropped by 9 percent at one point. See how the markets are falling
The FTSE recouped some of its losses to end the day down 5.0 percent. Frankfurt's DAX, earlier charting losses of 10 percent, rallied to also finish 5.0 percent lower while the Paris CAC index was 3.5 percent down.
With market convulsions toppling the price of oil from recent record highs, an emergency meeting of OPEC nations decided to slash output by nearly 5 percent in an effort to prevent a market collapse. But despite the cut, oil prices continued to fall.
It was also announced Friday that Iceland is nearing a deal to borrow up to $2.1 billion from the International Monetary Fund to prop up its economy, the IMF and Icelandic Prime Minister Geir Haarde's office said.
Iceland's stock market crashed earlier this month and the government nationalized of three of the country's biggest banks. Trading on the country's stock market was suspended for nearly a week.
Looming recession fears were exacerbated Thursday by Alan Greenspan, the former head of the U.S. Federal Reserve, who warned of a "credit tsunami" and confessed he was baffled as to how the financial system has broken down.
In Moscow, trading was halted in both main exchanges at one point as concerns that falling oil prices would hurt the economy triggered sharp falls. AFP news agency reported both markets would be closed until Tuesday.
Asian markets also endured a painful session with South Korea's KOSPI Composite Index closing down 10.6 percent and Japan's Nikkei Exchange dropping 9.6 percent to a 5-year low on news Sony had halved its profit forecast.
Mumbai's Sensex index closed near a three-year low having fallen 10.96 percent.
Oil producing cartel OPEC announced at an emergency meeting Friday it was cutting output by 1.5 million barrels to try to halt a collapse of in prices that has seen crude value drop by more than half.
The reduction failed to have an immediate impact, with crude trading down to around $62 a barrel -- compared to the record $147.27 it reached in July.
The economic turmoil will be the focus of the two-day, 43-nation Asia-Europe Meeting, which opens Friday in Beijing, according to European Union President Jose Manuel Barroso. Watch how European and Asian leaders hope to tackle the crisis
Leaders hope this week's summit in China will help bring agreement on a response to the crisis ahead of a November 15 meeting hosted by U.S. President George W. Bush in Washington.
"We need a coordinated global response to reform the global financial system. We are living in unprecedented times and we need unprecedented levels of global coordination," The Associated Press reported Barroso as saying.
"It's very simple. We swim together or we sink together." Barroso outlined no specific proposals but said a solution needed to be based on transparency, responsibility, cross-border supervision and global governance. He also said the world's financial system needed "major reform."
Greenspan, who chaired the U.S. Federal Reserve from 1987 through 2006, said Thursday that whatever regulatory changes were made to respond to the crisis, "they will pale in comparison to the change already evident in today's markets."Do we really need to rebuild, asks Charles Hodson
Greenspan, who some analysts say did not do enough to control financial institutions during his two-decade tenure, made his comments in prepared testimony to the House of Representatives Oversight and Reform Committee.
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