In Germany and France the benchmark Xetra DAX and CAC indices of leading shares were down more than two per cent, while London's FTSE 100 index was off by around 1.2 per cent. In Hong Kong, the blue chip Hang Seng index dived 310.05 points or 3.09 per cent to close at 9,738.52. In India, Sensex fell by 32 points at 3297.86.

Major currencies were buffeted in narrow ranges in early trade as dealers wondered whether Brazil's problems would contaminate other emerging markets. Brazil, the world's eighth biggest economy, would continue to be the focus of attention as it braces for a grueling new test of its real currency, which has plunged to new lows as the country's dollar pool dries up, analysts said.

The real tumbled a further 7.6 per cent against the dollar on Thursday to an all-time low of 1.72 per dollar. The realthreatens to spiral out of control, extending a 30 per cent devaluation as private banks' supply of US dollars grows scarce, economists said.

Brazil's benchmark stock index, the Bovespa, shed 4.6 per cent on Thursday, but neighbouring Argentina's took an even bigger hit, tumbling 6.2 per cent on concern over fallout.

Brazil's Central Bank reiterated on Thursday it would let the market decide the currency's value. "There is no intention of intervening and I am unaware of any intention in that respect," said Altamir Lopes, the head of its economics department.

Investors were worried by talk that Brazil's devaluation could ripple through other emerging markets and force devaluations elsewhere, especially Argentina, as Brazilian exports became cheaper and more competitive in dollar terms.

Argentina denies any vulnerability but said on Thursday it was proposing a radical scheme that would eliminate currency risk through a treaty of "monetary association" with the United States.