FEARS a split Congress could hamper action on the US economy saw initial market euphoria that the elections had delivered a decisive result rapidly switch to fear on world markets.
The Dow plunged 312.95 points in its worst one-day fall for the year, with the FTSE 100 losing 1.6 per cent and the benchmark Eurofirst dropping 1.4 per cent.
The price of oil mirrored the fall in equities, with US crude down 57 cents at $88.14 per barrel.
Meanwhile, gold surged to its highest level in two weeks, hitting $1,729 an ounce, its strongest level since 23 October, before slipping back to $1,726.31 as investors rushed into safe-haven investments.
The dramatic movements came as analysts warned the result of the congressional elections – with the Republicans retaining the House of Representatives and the Democrats holding their majority in the Senate – meant little had actually changed.
“The split Congress will not make it easier to deal with the fiscal challenges of the next few years,” said Bernd Weidensteiner of Commerzbank.
Unless the two sides of government can agree a new plan to deal with America’s debt, more than $600bn (£375bn) of tax increases and spending cuts will be automatically enacted at the end of this year, a result which ultimately could tip the US back into recession, the IMF has warned.
“The persistent uncertainty will remain a drag on confidence, including in the equity market,” said Julian Jessop from Capital Economics.