It seemed, briefly, as if turmoil in world markets had subsided. On Wednesday at 4.30pm, the FTSE 100 closed down just 19.7 points. All eyes were focused across the Atlantic, and the American markets seemed docile, slipping sideways. By 7pm London time, Wall Street had even advanced after the Federal Reserve injected cash into the markets and some investors went bargain hunting. British traders went home, convinced that they had witnessed what passes for a benign day in the current market conditions.

It was the beginning of a torrid day in August:

US stocks begin to fall. Traders have held their nerve all day, but bad news from two US corporates wrapped up in the sub-prime debacle starts to spread panic. By 7.55pm, shares in Countrywide have fallen 19.5 per cent to $19.69 on market rumours that America’s largest mortgage company was unable to raise money from the commercial paper market. KKR Financial, part of KKR, the giant US buyout group, admits huge potential losses relating to sub-prime. Wobbles on the US markets become wild oscillations, with the Dow Jones swinging above and below the crucial 13,000 mark. By 8.20pm, the swings have become a slide as panic grips the market. Rumours swirl. Is a big hedge fund close to collapse? Which bank will be the next to admit to huge sub-prime losses?

By 9.30pm, the S&P has closed 1.4 per cent down. The Dow has fallen 167.45 to 12,861.47, its lowest close in nearly four months. Yields have tumbled on three-month US Treasury bills, falling from 4.5 per cent to 3.9 per cent, the sharpest drop since 1989. Henry Paulson, US Treasury Secretary, is among those keenly watching developments, aware that a mistimed, misconstrued sentence could reinforce the panic infecting the markets.

Midnight. In Tokyo on Thursday morning (8am, local time), traders just back from their annual three-day “obon” holiday, digest the overnight battering of US shares, and quickly start to sell. At 1.50am, the Bank of Japan, having earlier drained 3.6 trillion yen (£16.1 billion) of liquidity from the financial system, suddenly changes tack, flooding the market with Y400 billion of cash. The move triggers a 300-point tumble on the Nikkei 225.

At 2am in Seoul (10am, local time), traders send South Korean stocks down 7.5 per cent as investors panic that a slowing US economy will hit the nation’s exporters. In Hong Kong, strong earnings reports by Hang Seng index members fail to stem a rout of stocks held by hedge funds.

At 5.30am, traders worldwide wake up to comments by Mr Paulson in The Wall Street Journal that the financial turmoil will “extract a penalty” on US growth. He insists the financial system is strong enough to fend off a recession. His comments, rather than soothing nerves, rattle investors still further.

By 6am, the yen is soaring against the dollar, the euro, sterling and “cross rates” with currencies associated with carry trades, the market shorthand for borrowing at tiny interest rates in Tokyo to fund rewarding investments elsewhere in the world. At 7am, the Nikkei, having at one stage fallen below 16,000 for the first time since November 2006, closes at 16,148.49. In London, traders wake to carnage in Asian markets overnight, and rush to sell, sending the FTSE 100 down by 2.8 per cent as it opens at 8am. Investors panic across Europe, with stock markets tumbling from Germany to Turkey, as traders rush to pull out cash. By 8.35am, the FTSE has gone below 6,000, a figure seen as psychologically important to stock-watchers.

At 8.50am, UK gilts hit three-month highs as investors seek the safety of government bonds. But sterling falls to a two-month low to the dollar as carry trades are unwound. Brent crude tumbles $2 a barrel to below $70.

At 9.15am, in a letter to Angela Merkel, Germany’s Chancellor, Nicolas Sarkozy, the French President, says that the authorities must be “very vigilant” on market corrections. President Sarkozy also points a finger at credit- rating agencies and their failure to flag growing sub-prime risk. At 10.30am, China’s yuan posts the biggest drop against the dollar in a year, as the Chinese central bank reacts to market turmoil by temporarily halting the currency’s appreciation.

By 10.40am, US stock futures foreshadow another session of falls ahead of the markets opening in New York. European investors are spooked as more bad news on sub-prime exposure continues to spread across Europe. reach India. By 11.50am, Indian shares have suffered their biggest fall in more than four months.

In the US, by 12.20pm, Countrywide shares tumble more than 10 per cent in pre-market trading after it borrowed £11.5 billion from 40 banks to boost stressed finances. At 1.30pm, the US Federal Reserve pumps an additional $5 billion into the banking system, later pushing its total injection of funds for the day up to $12 billion. At 2.40pm, it emerges that ten banks, including HSBC, Barclays and UBS, have agreed a $37 billion bailout of parts of the Canadian debt markets.

At 2.30pm, US markets open. The Dow tumbles 84.2, while the S&P 500 index and the Nasdaq briefly trade 10 per cent below their 52-week highs, the threshold defined as a market correction. The FTSE falls gather pace.

The “Vix” volatility index — known as Wall Street’s fear gauge — jumps 7 per cent by 3.20pm to 33.13, its highest in four years. Just before London’s close, at 4.20pm, Moody’s adds to fear by saying a big hedge fund could fail.

As traders pack up to go home as the FTSE closes at 4.30pm, they have lost more than £58 billion in one day’s session. The 4 per cent fall in the FTSE 100 is the biggest one-day percentage drop in more than four years.

By 9.30pm US stock markets have rebounded sharply, after earlier sliding into technical correction territory with the Dow Jones industrial average down by as much as 340 points at one stage, 10 per cent below record highs set last month. Its late resurgence sees it close down only a modest 15.70 at 12,845.80.

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