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Asian and European markets have fallen dramatically during today's trading as fears of a US slowdown continue to agitate the global economy.

Despite heavy rate cuts by the US Federal Reserve, which reduced the federal funds rate to three per cent a week ago, markets have remained jittery today after data was released showing a contraction in the US service sector.

Many investors and analysts believe that it signals a recession in the US economy, and exacerbates the financial catastrophe resulting from the US mortgage crisis.

The Dow Jones industrial average fell 2.9 per cent yesterday, closing at 12,265.13 points, while the Nasdaq composite index shed a similar 3.1 per cent to close the day at 2,309.57 points.

The Hang Sang index in Hong Kong closed down 5.4 per cent to 23,469.46 points, while the Nikkei 225 in Tokyo was down 4.7 per cent to close at 13,099.24 points.

In Tokyo, the MSCI Asia-Pacific index slid 3.4 per cent to 142.07.

The FTSE 100 in London has started the day by skimming off 0.32 per cent to 5,849 points after finishing 2.6 per cent lower yesterday, while markets in Belgium and Amsterdam have also started the day lower.

Commodities prices have also recoiled, with the price of crude oil dropping to a 22-month low, while base metals, such as copper and aluminium, declined in Asian markets on the recession concerns.