Around €3 billion was wiped from the value of Irish shares as the Iseq was dragged down by bank stocks and Ryanair.
In what one broker described as a "vicious" day, the Dublin market closed the day down 5.3 per cent as it tumbled by 259.14 points to 4,617.01, making it by far the worst performing market in Europe.
Ryanair was hammered throughout the day following its first quarter results in which it posted an 85 per cent drop in profits in the first quarter to €21 million and predicted that it may make its first full-year loss since going public in 1997 if fuel costs remain high.
The stock was sold off aggressively on opening and failed to recover during the day, eventually closing more than 22.5 per cent weaker as it lost 72.8 cents to €2.50.
That had a knock-on effect on Aer Lingus which slipped back 23.9 cents to €1.311, a fall of 15.4 per cent.
There was no respite for the banking sector with financial stocks also under pressure from the start. Irish bank stocks fell in line with their European counterparts, but yet again the fall was much steeper. Relatively .lLight volumes contributed to the volatility of banking stocks.
Anglo Irish Bank was 12.65 per cent weaker as it shed 76.4 cents to €5.276. Concerns ahead of AIB's interim results on Wednesday, with some brokers predicting that it may have bad debts of around €2 billion over the coming years, continues to weigh heavily on the stock. It saw 9.76 per cent wiped off the value of its share price as it dropped 80 cents to €7.40.
Bank of Ireland was 10.5 per cent weaker as it shed 59 cents to €5.01, while Irish Life & Permanent dropped 47 cents, or 9.27 per cent, to €4.60.
Construction stocks fared little better. Grafton was off 7.74 per cent at €3.23, while CRH shed 35 cents to €16.45, a fall of more than 2 per cent.
European stocks fell for a third day, led by banks and airlines, as concern deepened that credit losses and the economic slowdown will hurt earnings.
National benchmark indices declined in all 18 western European markets except Norway and Greece. The UK's FTSE 100 slipped 0.7 per cent. France's CAC 40 decreased 1.1 per cent and Germany's DAX retreated 1.4 per cent.