U.S. stock futures pointed toward a slide at the open, with Dow futures down 225 points and S&P 500 futures down 29.60 about two hours before trading began.
Investors were ignoring moderate inflation data out of China, showing inflation at a five-month low, and focusing instead on ripples spreading from Italy's debt crisis.
Britain's FTSE 100 fell 1.8 per cent, France's CAC 40 lost 2.3 per cent and Germany's DAX slipped 2.5 per cent. Banks were among the worst-hit stocks.
Italian bond yields soared past 7 per cent, a level many economists consider unsustainable in the long term, raising the possibilty that Italy may be the next European nation to need a rescue.
The yield on 10-year bonds surged to a high of 7.42 per cent, up 0.82 of a percentage point from Tuesday. Greece, Ireland and Portugal had to ask for rescue loans once it became clear that their borrowing rates were stuck above the 7-per cent threshold.
U.S. Treasury yields fell below 2 per cent, to 1.98 per cent, reflecting a flight of capital to havens.
The euro slid 1.5 per cent to $1.3627 (U.S.).
Copper fell 1.5 per cent to $3.48 a pound.
Gold dipped $9.20 to $1,790 an ounce.
U.S. crude oil fell $1.15 to $95.65 a barrel.
The Canadian dollar declined to 98.02 U.S. cents.