Blue-chip stocks remained under pressure today after concerns over US plans for a 700 billion dollar (£383bn) bank bail-out resulted in heavy overnight falls on Wall Street and in Asia.
The FTSE 100 Index sunk by 2pm to more than 115 points into the red, about 2.2 per cent down, extending a 1.4 per cent fall yesterday as Friday's record-breaking rally came to an abrupt end.
America's Dow Jones Industrial Average closed more than 3 per cent down, while the Hang Seng in China suffered 2.7 per cent falls.
Investors headed for the exit as worries mounted over the cost and economic implications of the US Federal Reserve's plans to buy toxic assets from banks.
The cost of crude eased back today to around 107 US dollars a barrel following yesterday's biggest ever one-day gain seen as investors fled to oil amid unease over the mammoth US bank rescue plan.
But as oil prices remained elevated, fuel dependent stocks continued to suffer on London's Footsie.
British Airways shares dropped 6 per cent in early trade, tour operator Thomas Cook shed 3 per cent, while bus and rail group Stagecoach lost 5 per cent.
Heavy falls among miners and retailers - such as Next and Marks & Spencer, of more than 3 per cent each - also provided a drag on the leading share index.
Matt Buckland, dealer at CMC Markets, cautioned that markets should be braced for further volatile trading.
"Traders will continue to digest the proposals in the coming days and there's clearly a lot of sentiment involved as we are seeing a step change in the financial landscape as we have come to know it. As this is played out, further volatility is inevitable," he said.
Further wrangling between the White House and US legislators over the terms of the massive package added to fears in America yesterday.
Some US politicians have argued for provisions to be added to the proposed package, such as limiting pay for executives of the troubled companies in need of the bailout. It is feared such calls could lead to further delays.
However, news of the plans on Friday saw the Footsie post its biggest one-day gain of 8.8 per cent, adding more than £100 billion to the values of Britain's biggest companies.