European debt fears sent the FTSE 100 Index hurtling back towards the 5000 mark today in a second straight session of heavy losses.
The Footsie dropped nearly 100 points at one stage, with other European markets deep in the red, amid concerns over the health of debt-laden countries such as Greece, Portugal and Spain.
British banks were among those hit hardest in the sell-off as figures revealed the sector has a near £100 billion exposure to the struggling European economies.
US jobless figures showing a fall in the rate of unemployment did little to ease the UK stock declines, with the FTSE 100 closing down more than 1.5 per cent.
The top tier plunged 2 per cent yesterday as the concerns first emerged over the precarious financial position of some European countries.
The European Commission approved a turnaround plan for the Greek economy this week involving savage cuts - but this has prompted a wave of strike action and stock exchanges across Greece, Portugal and Spain came under heavy pressure.
London's FTSE 100 is now trading close to the 5000 mark - a level not seen since last November - having started again on the back foot today after heavy falls on Asian stock markets overnight.
Yesterday's fall alone wiped more than £29 billion from leading shares and the index has now lost around 9 per cent since hitting 5600 in early January.
There was a brief pull-back thanks to the surprise fall in America's unemployment rate to 9.7 per cent in December from 10 per cent in November.
But the Footsie soon fell deep into the red once more, closing down 78.4 points at 5060.9, with the Dax in Germany also down nearly 2 per cent and France's Cac 40 off 3 per cent.
David Jones, chief market strategist at IG Index, said global markets were taking a "beating".
"For now many investors are simply grateful that the FTSE hasn't crashed below that big 5000 level," he added.
Wall Street was down another 0.8 per cent within the first few hours, trading below the key 10,000 level, having ended the day down 2.6 per cent yesterday.
Commodities and financial stocks were out of favour in London again today, having been at the forefront of yesterday's losses.
Energy company BG was down 3 per cent despite beating expectations for its fourth quarter results.
Meanwhile miners littered the fallers board, led by a 5 per cent tumble for Xstrata. Banks were also out of favour amid the investor jitters and Lloyds Banking Group shed around 6 per cent.
Just a handful of stocks were left in positive territory.
BAE Systems was one of the few risers - up 2 per cent - at relief over an agreement on corruption charges, which will see the defence giant pay fines of £286 million but put to bed a lengthy investigation.