The franc jumped by almost 30 percent in a chaotic few minutes after the 1.20 per euro cap in place since late 2011 was lifted, surging past parity to trade as high as 0.8052 francs per euro. It was trading at 1.02600 at just after 1200 GMT.
The move reversed an earlier rebound in risk appetite following an overnight recovery in commodity prices.
Over 100 billion francs ($98 billion) was wiped off the value of Swiss stocks, their biggest daily fall in 26 years, while the pan-European FTSEurofirst 300 slumped 2 percent and Wall Street futures turned negative.
As investors scrambled for traditional safe-haven assets, there were new record low yields for Germany's government bonds and gains for the yen and gold.
"This is extremely violent and totally unexpected, the central bank didn't prepare the market for it," said Alexandre Baradez, chief market analyst at IG in France.
"It's sparking panic across all asset classes. It suddenly revives the risk of central bank policy mistakes, right when central bank action is what's keeping equity markets going."
The view among traders was that the Swiss central bank must have felt it could no longer hold out against the tide of money coming its way as the European Central Bank prepares to start quantitative easing and investors pour out of riskier markets such as Russia.
Adding to the nervous mood, oil has also resumed its slide. Brent crude fell back to $47.50 as a rebound by copper and other metals after their big falls on Wednesday also started to wane.
The Swiss move, which also saw interest rates cut deeper into negative territory, sent shockwaves far and wide.
Hungary's forint hit a record low as eastern European currencies and bank shares took a tumble, while the euro hit a new 11-year low of $1.1711 against the dollar. The cap had made the SNB one of the few euro buyers in recent months.
"The SNB probably expects the ECB to launch QE next week and along with the Greek elections coming up, it would make it pretty tough on the Swiss to keep bidding the euro," said Jonathan Webb, head of FX strategy at Jefferies in London.
Before Thursday's drama, markets had appeared to be calming down after turbulent few days, especially for commodities.
Asia stocks rose after India's central bank yielded to signs of slowing inflation and delivered a surprise interest rate cut, while Germany confirmed its economy -- Europe's largest -- grew 1.5 percent last year.
Copper had led a rebound in metals, clawing back 1.5 points of the 5.3 percent it lost on Wednesday, its biggest fall since 2011, though the mood remained wary.
"It is a period of huge confusion and you are seeing these really big seismic moves in markets," said Nick Lawson, a managing director at Deutsche Bank in London. "These kind of wide swings deter investors rather than encourage them."
"The threat of oil going to $30 a barrel is more important than what happens at the ECB next week. The implications of that is what is really in the headlights at the moment."
Copyright: Thomson Reuters 2015