London's FTSE 100 Index tumbled by more than 2 per cent today after overnight falls in America left the Dow Jones at its lowest point since the bottom of the dot com crash.
The Footsie plunged by more than 100 points at one stage in early trade, with markets across Asia and Europe also hit hard.
Doubts over President Barack Obama's economic stimulus efforts have rocked equities this week and a sell-off yesterday in major US banks on fears of further Government bail outs added to the market woes.
In London, today's falls were led by mining groups and financial stocks, with embattled Royal Bank of Scotland in the red once more, down 6 per cent.
The falls have taken the FTSE 100 below the key 4000 mark, back to levels last seen in November at the height of the banking crisis.
RBS was joined by other blue chip banks in posting big share losses, with fellow part-nationalised bank Lloyds Banking Group down 4 per cent and Barclays slumping by 5 per cent.
Insurers Legal & General and Aviva, which have also suffered in recent weeks on fears over their capital strength, sunk further into negative territory.
Their rival Prudential was one of only a handful of stocks seeing gains, ahead 5 per cent after it took the opportunity to reassure over its capital buffer on releasing 2008 sales figures.
Markets had been braced for dire trading today after the Dow closed at a more than six-year low of 7,465.95.
And with the benchmark US index expected to open with another near-100 point fall later today, there is little cheer due from across the Atlantic to ease the Footsie's falls.
Matt Buckland, dealer at CMC Markets, said: "This could be a rather damaging end to the week.
"Investors are quite simply running out of short-term confidence with equities - especially amongst the banks - and as they batten down the hatches we're seeing these big technical levels being tested with arguably little regard for the fundamentals."
Official UK retail sales figures for January are also due out this morning and will be watched closely by the market as a further gauge of the battered UK economy.Reuse content