Dubai's stock market dropped by more than 8% on a turbulent day's trading, adding to substantial losses caused by fears of a faltering property market.
Two of the biggest fallers were the Gulf emirate's property giant Emaar and construction firm Arabtec.
Billions of dollars were wiped off other Mid-East exchanges including Abu Dhabi, Egypt, Qatar and Saudi Arabia.
Panic gripped trading floors in the morning, although some staged partial recoveries before the close of trading.
The Dubai Financial Market sank to 3012 at midday after starting the day at 3184, although the index ended at 3085.
Foreign investors are reportedly selling interests in Dubai amid fears of weakness in the emirate's construction bonanza and a greater exposure to global markets than its Gulf neighbours.
Unwarranted falls
Saudi Arabia's stock exchange - the Middle East's largest - also staged a comeback after falling by more than 7.5% at one stage, trading below the 6000-point mark for the first time since 2004.
Deputy Director Mohammed al-Jasser said recent sharp stock market falls, which have hit Saudi banks hard, were unwarranted.
"The situation is stable and does not require any emergency measures as if there were a problem with the banks meeting their commitments," Mr Jasser told al-Arabiya TV.
The latest declines mean Saudi bank shares have lost more than half their value since the beginning of the year.
Record falls
Egypt's stock market also clawed back more than half of its losses earlier in the day to close down 7.1%. The benchmark Case-30 index lost 16.47% on Tuesday.
"We're swamped here," Ahmed Hefnawi, an analyst with investment bank EFG Hermes, told AFP news agency during frantic selling in the morning.
Kuwaiti economist Hajjaj Bukhdur said: "High tension and panic are gripping the Gulf stock markets".
"Some major portfolios and investment funds are pressurising governments to intervene by injecting liquidity," he said.
Earlier in the day Kuwait's Central Bank cut discount interest rates by 1.25 percentage points to 4.5%, hoping to address growing concerns about financial liquidity.
In morning trading, the stock market - which is the Arab world's second largest - fell by 2.8%, but it closed down just 1.4%.
There was no recovery at Qatar's exchange, however, which ended the day 8.77% down, the biggest single-day market fall in several years in the gas-rich state.
The Tel Aviv stock exchange was closed for a Jewish holiday, having risen on Tuesday thanks to a 0.5-point cut in the base interest rate, to 3.75%.
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