The FTSE 100 closed down 118.6 points at 5,541.7 in thin trade, having been down as much as 144 points at one point in the day. Better-than-expected US data helped the market stage a partial recovery in the afternoon, said analysts.
Ken Wattret at Paribas said: "The UK equity market has been performing very poorly since [Thursday's] interest-rate cut. The cut has been seen as confirmation the economy is in trouble. I also think there is an element of profit taking."
London trading volumes were low as leading houses cut back on activity ahead of the launch of the euro in three weeks. Equity prices in Paris and Frankfurt were also sharply down, with the German Xetra DAX shedding more than 2 per cent.
In Asia, global worries weighed on equities, with Japan's Nikkei 225 down 402.16 - 2.7 per cent - at 14,405.64. Nerves ahead of Monday's Japanese Tankan survey - a key indicator of business confidence - contributed to the slide.
In New York, impeachment worries and more blue-chip profit warnings hit investor confidence. By lunch-time, however, the Dow Jones average was trading off earlier lows on the release of better-than-expected economic data.
US retail sales rose by 0.6 per cent in November, a sign that US consumer spending is still strong.
Separate figures showed that US producer prices fell last month for the first time in three months, suggesting inflationary pressures remain relatively subdued.Reuse content