More than £62bn was wiped off the value of shares in London on Thursday after markets crashed again amid growing fears that the world is sliding into a double-dip recession.

The FTSE index in London closed down 239 points at 5092, a fall of 4.5% on the day, after dire manufacturing figures from the US prompted a sell-off on Wall Street which spread across the Atlantic.

All 100 stocks on the FTSE finished in negative territory, with banking and mining stocks among the biggest fallers. Barclays and Royal Bank of Scotland both fell more than 11% on concerns that European banks may need more capital.

Germany's Dax fell 6.3% and France's Cac lost 5.7%, while markets in highly indebted Spain, Italy and Portugal dropped by 5.8%, 6.1% and 4.8% respectively. In Asia, Japan's Nikkei closed down 1.25% while Hong Kong's Hang Seng tumbled 1.2% and the Shanghai Composite ended the day 1.6% lower.

At one point, the Dow Jones industrial average in New York plunged more than 500 points. It later closed down 419 points at 10991, a fall of 3.7%.

The yield on UK 10-year government bonds, known as gilts, tumbled to 2.31% – the lowest since 1897 – and gold jumped 2.1% to hit a fresh record high of $1,825.99 an ounce as investors fought shy of equities. Expectations that the world economy will need less oil pushed Brent crude down towards $108 a barrel, after reaching a two-week high on Wednesday. The euro fell 1% against the Swiss franc, regarded as a safe haven.

Dominic Rossi, global chief investment officer, equities, at Fidelity International, said volatility would continue. "I'm not expecting equity markets to go back to the highs we saw earlier this year soon, and frankly wouldn't be surprised if over the course of the next few months we see some further pressure, with the lows of a couple of weeks ago being re-tested."

He added: "There is going to be a greater demand for income from equities than there has been over the last 15 or 20 years."

Concerned that the eurozone debt crisis could be spreading to the US banking sector, regulators in New York have stepped up their scrutiny of the US arms of Europe's largest banks. The news was compounded by a cocktail of bad economic data from the US.

The Philadelphia Federal Reserve factory index, which measures manufacturing activity in the surrounding region, fell to its lowest level since March 2009. Further pressure came from unexpectedly bad new unemployment claims in the US last week, while inflation was higher than anticipated in July.

Morgan Stanley warned that the global economy was teetering on the brink of a recession, and slashed its growth forecasts. Citing "recent policy errors" and the prospect of further austerity measures in 2012, it said the US and the eurozone were "hovering dangerously close to a recession over the next six to 12 months".

"While we had been calling for a 'BBB' recovery in developed markets all along, the path now looks even more Bumpy, Below-par and Brittle than previously thought," analysts Joachim Fels and Manoj Pradhan said in a note, adding that emerging markets were not immune either.

The US investment bank cut its global growth forecast to 3.9% from 4.2% this year, and to 3.8% from 4.5% next year. Growth in developed market economies is now seen averaging at just 1.5% this year and next (down from previous estimates of 1.9% and 2.4%). A recession is defined as two or more consecutive quarters of economic contraction.

"Still, recession is not our base case because the corporate sector looks healthy; household real incomes will be supported by lower headline inflation; and we expect more action from the Fed and the ECB, including rate cuts and more non-standard easing," the Morgan Stanley analysts said.

Fears that the UK economy could slide back into recession intensified after news that retail sales grew by just 0.2% last month, and by 0.1% in the last three months. The latest UK labour market data also painted a worsening picture, with unemployment rising sharply, especially among women and young people. The grim global outlook and turmoil in financial markets prompted the Bank of England's monetary policy committee to discuss a fresh round of quantitative easing at its meeting a fortnight ago, and its two most hawkish members abandoned their calls for higher interest rates to curb inflation.

At Franco-German crisis talks in Paris on Tuesday, Angela Merkel and Nicolas Sarkozy urged closer economic co-ordination and called for a Europe-wide tax on financial transactions to prevent the disintegration of the single currency.

Gary Jenkins, head of fixed income at Evolution Securities, said: "The European sovereign debt crisis is likely to remain a feature of markets for some time, but if we see a sharp slowdown in economic activity it could threaten fiscal consolidation in core countries such as France and exacerbate the crisis."

Jenkins noted that one bank borrowed $500m (£300m) for a week from the European Central Bank on Wednesday. "It is the first time a euro area bank has borrowed dollars from the ECB since February. While one shouldn't read too much into one transaction it could be another indication of tension in money markets."