The fall, the steepest since October, was largely on the back of New York where, in scenes of utter confusion, computer problems delayed the opening for an hour and the Dow Jones Average was once almost 90 points lower.
New York's basic anxiety was fuelled by the Budget stand-off which is seen as ruling out any further interest rate cuts for the time being.
The latest decline puts in jeopardy the traditional Christmas rally. In recent years the Footsie has scored spectacular progress in the run up to Christmas with prices surging ahead in thin trading.
The very paucity of trading created much of the cheer. It took little action to produce exaggerated price movements with, for example, Footsie jumping more than 100 points ahead of Christmas last year.
Although blue chips edged ahead for the first four days of last week they gave up much of their gains on Friday and yesterday's decline means Footsie has fallen 75.5 points in two trading days.
Even last week's high flying take over favourites came down to earth with a thump. Royal Bank of Scotland, which duly lined up its US deal with Bank of Ireland, lost 23p to 585p and Bank of Scotland 22p to 284.5p. National Westminster Bank, with its US disposal expected to be announced this week, gave up 23.5p to 629.5p.
Other financials were also hit, with the once bid-happy insurance shares giving ground. GRE fell 10.5p to 259p.
Airtours, the holiday group which last week produced profits in line with market forecasts - and is now warning of a holiday shortage next year - gained 13p to 352p but First Choice, due to report today, stuck at 64p as the market braced itself for a dismal showing.
Ladbroke was one where takeover rumours stuck. But even the betting and hotel group needed a new name in the frame to remain on the right side. The shares cantered 3.5p to 153.5p as Whitbread replaced Bass - the long rumoured bidder - as the front runner.
The story could draw support from Whitbread's hotel ambitions. In August the brewing group splashed out pounds 180m on the 16 Marriott hotels in the UK. Ladbroke's international spread of Hilton hotels would be a welcome addition to the Whitbread chain - but it could find it difficult to reconcile the Marriott and Hilton managements.
Bookie Gus Carter rose 3p to 58p. It said that it had held talks with rivals Stanley Leisure and others but "no firm intention" to bid had been made.
Next, the retailer, ignored the gloom, gaining 17p to 468p. The interest rate outlook and reports of improved high street trading in the Christmas run up helped. But the old story of a link with Great Universal Stores is never far below the surface. GUS put on 4p to 673p.
The bio babes had, not surprisingly, a difficult session but British Biotech jumped 112p to 1,720p. Chiroscience, duly confirming its pact with the drugs group, Medeva, fell 25p to 339p.
SelecTV, ahead of the expected Pearson bid, gained 2p to 30p but Amec, awaiting the result of the Norwegian offer, gave up 3p to 93p.
Cray Electronic tumbled 6.5p to 40.5p after further consideration of last week's results and high flyer Telspec lost 44p to 842p as profit- takers moved in.
Norcros, the building materials group, gained 4p to 84p. The hard pressed group is thought to be on the verge of selling its packaging and printing side.
Viewinn, the latest AIM recruit, reached 135p against a 100p placing. The company has developed the technology which allows television sets and telephone lines to act as information and communication terminals.
Tele-Cine Cell, providing production and special effects facilities, tumbled 26p to 72p after warning of lower profits. The shares were floated two years ago at 170p.
English National, an investment company, edged forward 1p to 46p. The shares have climbed from 34p this month. The trust is under new management and there is talk of some intriguing overseas involvement. It is suggested that Joseph Lewis, the Bahamas-based investor who has built a 25.32 per cent shareholding in auctioneer Christies International, has taken a stake.
Sims Foods, up 2p at 35p, reflected hopes of a bid from the Whitchurch food group.
o Blagg, the builders merchant expected to evolve as a media group, could be near to completing its first deal since the arrival of Chris Akers - a former corporate financier at Swiss Bank Corporation. It is thought that the long-running talks to acquire FreePages, a rival to BT's Talking Pages, have at last reached a conclusion and details will be known this week. Blagg's shares are likely to be suspended while the deal goes through. They closed at 16p.
o Ingham, which once had ambitions to become a mini-conglomerate, now sees its future as an investment trust with an injection planned at 36p a share. It is in talks to sell its worsted spinning side and will presumably also dispose of its car parts and property operations. The shares are 37p.