London's FTSE 100 Index slumped more than 1% today after US figures showed weaker-than-expected growth in the second quarter.
Stocks fell amid fears of a sluggish recovery for the world's biggest economy, with the Footsie closing down 55.9 points to 5258.
America's gross domestic product (GDP) data showed 2.4% annualised growth between April and June - slightly below the 2.5% forecast by the market - while revisions also showed the US had a deeper recession than first thought.
Wall Street's Dow Jones Industrial Average plunged almost 120 points on opening, although losses were soon pared back as investors saw positive signs in the economic report.
Analysts said there was some good news in the consumer savings rate, which could lead to higher spending in the coming months.
The pound strengthened to more than 1.57 against the dollar as the greenback took a hammering after the GDP data.
Sterling also rose 0.7% to €1.20.
In London, the corporate spotlight was on British Airways, which shrugged off a £250m (€300.75) hit from strikes and Iceland's volcanic ash cloud as investors chose to back signs of recovery.
Chief executive Willie Walsh's forecast of a break-even performance this year and improving passenger trends helped shares add 3.6p to 219.6p, or 2%, putting it among the top risers.
A clutch of utility stocks also defied the market falls after an infrastructure fund snapped up the UK's biggest electricity distribution network from EDF in a £5.8bn (€7bn) deal.
The bigger-than-expected price tag raised hopes of renewed appetite for UK assets and meant United Utilities rose 24.5p to 585p.
Water firm Severn Trent added 30p to 1310p, while in the FTSE 250 South West Water-owner Pennon added 12.5p to 590p.
The late session sell-off wiped out early gains for some stocks, with broadcaster BSkyB ending the day unchanged at 711p after rising more than 2.5p at one stage as Citigroup brokers upped their target price following yesterday's strong results.
Cruise ship giant Carnival also lost advances, down 6p to 2300p, despite positive broker comment as Bernstein analysts said there was too much caution over prospects for the sector.
Investment bank Investec was among the leading fallers as markets gave a lukewarm reception to its "satisfactory" performance during the first half of the year, leaving shares 12p down at 495p.
In the FTSE 250, broadband group TalkTalk eased 0.8p to 122.5p after net new broadband customers fell to 34,000 in the seasonally quieter first quarter of its year.
The firm hopes to boost revenues through a tie-up with Vodafone which will see it offer mobile phone services to its 4.2 million customers.
Elsewhere London taxi cab maker Manganese Bronze motored 15% higher, or 5.25p to 40p, as the company predicted tough markets for the rest of the year, but a return to profit in 2011 as the impact of a cost-saving drive kicks in.
The biggest Footsie risers were United Utilities up 24.5p to 585p, Severn Trent up 30p to 1310p, British Airways up 3.6p to 219.6p and Randgold Resources up 65p to 5730p.
The biggest Footsie fallers were Essar Energy down 14.8p to 414.1p, Legal & General down 2.6p to 89.6p, Man Group off 6.1p to 217.3p and Segro down 7.2p to 280p.