Global stock markets have fallen after a warning that the UK's top credit rating is at risk.
UK shares were hit after ratings agency Standard & Poor's (S&P) changed the UK's outlook to negative.
The move sparked fears that other economies, such as the US, might face a similar fate.
The Dow Jones index ended the day down 1.5%, while the UK's FTSE 100 fell 2.8%, France's Cac 40 lost 2.7% and Germany's Dax shed 2.7% by their close.
A credit rating downgrade would make is more expensive for the UK to borrow on international markets and could jeopardise spending plans.
Governments worldwide are borrowing more as they try to stimulate their economies.
"It raises questions about our own situation (in the US) in terms of our deficits and our national debt," said Alan Skrainka, US-based chief market strategist at Edward Jones.
Asian shares also ended the day lower with the Nikkei down 1%.
Meanwhile there was more pessimism about the US economy.
“ Just the thought of a downgrade would provide an excuse to sell dollars ”
Matt Esteve, trader
Claims for unemployment benefits set a record for the 16th straight week, data released earlier showed.
On Wednesday the Fed said it expected the economy would contract between 1.3% and 2% this year.
Earlier in the year, the bank predicted the economy could contract between 0.5% and 1.3%.
It also warned that US unemployment could reach 10%.
"Minutes of the last meeting painted a downbeat outlook for global economies and the financial sector, suggesting that any feelings among traders that the worst was behind us could prove premature," said David Jones, chief market strategist at IG Index.
"This combination of news over the last 24 hours has resulted in a predictable knee-jerk sell off - the question from here is whether it is the start of a more sustained slide to correct the impressive gains seen since mid-March," he added.
S&P cited rising UK debt levels as a major concern.
UK public debt hit a record £8.46bn in April compared to £1.84bn in the same month last year.
Standard & Poor's said UK debt could be close to 100% of gross domestic product, and remain at that level in the medium term.
S&P's change of view on the UK economy led to a brief fall in the value of the pound against the dollar.
Immediately after the outlook change, sterling fell 3 cents to a low of $1.5519.
But the currency later recovered to hit a fresh 6-1/2 month high of $1.5890 as the dollar bore the brunt of selling pressure.
"No one wants to admit it but there might be investors nervous enough with the extreme levels of indebtedness of the US government so that just the thought of a downgrade would provide an excuse to sell dollars," said Matt Esteve, a trader at Tempus Consulting in Washington.
"If such a thing happened, the impact would be huge."
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Published: 2009/05/21 21:11:23 GMT