"We are not used to seeing stocks implode and Treasuries sell off," said Josh Stiles, senior bond strategist at IDEAglobal. "People are saying they don't even want to be in Treasuries now, they need the cash."
European shares closed out their worst week ever, with the pan-European FTSEuroFirst 300 index shedding 22 percent for the week after closing down 7.6 percent. The FTSEurofirst 300 closed at 851.23 points, its lowest close since July 2, 2003.
"The new lows we've seen in stock markets this week are the result of panic selling," said Joost van Leenders, asset allocation specialist at Fortis Investments. The DJ Stoxx European bank index fell 10.6 percent, with Royal Bank of Scotland down more than 20 percent while Credit Suisse and Deutsche Bank lost over 16 percent each.
The MSCI world equity index fell more than 4.0 percent at one point to a five-year low, losing a fifth of its value this month alone. The index has lost 43 percent since January, on track for its worst yearly performance in 20 years.
"As long as markets remain risk averse to this degree, it is difficult to see the US dollar making a material reversal despite many of the issues currently gripping global markets being home grown," said Dustin Reid, senior currency strategist at RBS Global Banking & Markets in Chicago.
Tensions persisted in the money market, where the cost of borrowing dollars for three months rose to 4.81875 percent at the fixing in London. In currency markets, increased risk aversion left the yen as the currency of choice, with the euro earlier falling to a three-year low of 132.80 yen and the dollar hitting a 6-1/2-month low of 97.92 yen.
In midday trading in New York, the Intercontinental Exchange's US dollar index, which tracks the value of the greenback against a basket of six currencies, rose 0.7 percent to 82.105, after rising as high as 82.223, the strongest level since June 2007.
The euro fell nearly 1.0 percent against the dollar at $1.3468. Fears about Britain's vulnerability to the financial crisis sent the pound tumbling to a five-year low of $1.6802. Gold prices slid as the equities rout sparked a sell-off in commodities. Spot gold was down 1.8 percent at $870 an ounce on the rally in the dollar and profit-taking. Investors are looking to the weekend's meeting of leaders from the Group of Seven major industrial nations. However, hopes for a comprehensive deal to help to solve the crisis were fading fast.
"It is not clear we will see much from the G7 meeting and this will probably keep rpetite under pressure," said Rob Minikin, senior currency strategist at Standard Chartered.
Co-ordinated interest rate cuts by the Federal Reserve and other major central banks this week failed to relieve investor fears that the freeze in credit markets will damage banks further and provoke a deep recession around the world. Equity trading in Russia, Iceland, Romania, Ukraine and Indonesia was halted.
ASIAN STOCKS: Asian stock markets were hammered Friday with Tokyo diving 11 percent at one point as investors grew more concerned that the global credit crisis is getting out of control, dealers said.
Markets across the region plummeted into the red as dealers ignored a wave of interest rate cuts and billions of dollars of cash injections to sell their shares amid the worst global financial crisis since the Great Depression. Investors took fright at news that the credit crisis has claimed its first Japanese financial institution with the bankruptcy of Yamato Life Insurance, pushing the Nikkei stock index down 9.6 percent by the close.
It was the Nikkei's biggest loss in two decades, surpassing Wednesday's plunge of 9.38 percent. The Nikkei has lost more than 24 percent over the past week. Hong Kong saw 7.2 percent wiped off its value. The market there has fallen 16 percent in the past week and 47 percent since the start of the year.
Sydney was also battered, losing 8.3 percent, its biggest fall since the 1987 crash. Singapore lost 7.34 percent to its lowest level in more than four years as traders also took in data that showed the economy was in a technical recession. Seoul lost more than four percent and Shanghai was 3.5 percent off. Taiwan was closed for a public holiday. Manila also felt the pressure, diving more than eight percent, it was 9.6 percent down.
The sell-offs came as world finance chiefs prepared an emergency meeting in Washington to address the panic. In Japan, the central bank tried to keep liquidity in money market by pumping 4.5 trillion yen (45.5 billion dollars) into them, the most since the financial crisis started, while the stock exchange briefly halted some trading in futures and options.