Wall Street headed for another precipitous drop on Friday as fears of a punishing global recession stirred panic among investors and sent world financial markets into a tailspin. The Dow Jones industrial average futures fell as much as 550 points, triggering a freeze in selling.

The massive decline was caused by increasingly grim news from overseas. In Japan, shares of Sony sank more than 14 per cent after it slashed its earnings forecast for the fiscal year. In Germany, Daimler's stock dropped 11.4 per cent in morning trading after it reported lower third-quarter earnings and abandoned its 2008 profit and revenue guidance.

Japan's Nikkei stock average fell 9.60 per cent. In Europe, Germany's benchmark DAX index was down 10.76 per cent, France's CAC40 dropped 10 per cent while Britain's FTSE 100 sank 8.67 per cent after the government said its gross domestic product fell 0.5 per cent in the third quarter, putting the country on the brink of recession.

The dour outlook convinced investors that the world economy is headed for a long and severe downturn despite a raft of government rescue efforts aimed at pulling the financial system from the brink. It also indicated that the tremors caused by the global credit crisis may have only begun to be felt in their true scope and magnitude.

Fearing more carnage in world equity markets, big hedge funds and other institutional investors have been pulling out their money en masse in a bid to reduce risk and raise cash — a process known as deleveraging that only intensifies the selling.

Ahead of the market's open, Dow Jones industrial average futures fell the maximum allowed limit of 550, or 6.27 per cent, to 8,224. That triggered "circuit breakers" that automatically freeze selling until the market's 9:30 a.m. ET open. However, traders can still buy stocks and send the market higher.

The Standard & Poor's 500 index futures index was also down the maximum allowed 60 points, or 6.56, to 855.20, and the Nasdaq 100 index futures was down the maximum allowed 85.00, or 6.20 per cent, to 1,175.75.

The big drop in futures trading raised the possibility that circuit breakers intended to prevent panic selling could be triggered during regular trading — something that hasn't happened since 1997.

If the Dow Jones industrial average falls 10 per cent before 2 p.m. ET, the market will shut down for an hour. If the threshold is breached between 2 p.m. and 2:30 p.m., the halt will last 30 minutes. Trading would stop again if the Dow falls by 20 per cent. If trading falls by 30 per cent at any time, trading would be halted for the day.