European markets sunk into the red on Tuesday after North Korea ratcheted up tensions with the United States by firing a ballistic missile over Japan.
The FTSE 100 Index closed down 64.03 points to 7,337.43, after the rocket plunged into waters off the northern Pacific Ocean in a sign of defiance from Pyongyang to the war games being conducted by Washington and South Korea.
Germany's Xetra Dax dropped 1.5% and the Cac 40 in France fell 1%, as analysts speculated whether North Korea was testing a new intermediate-range missile that it threatened to fire towards the US territory of Guam.
David Madden, analyst of CMC Markets UK, said: "European equity markets sold off heavily after North Korea launched a missile over Japan last night, and that rattled investor's already weary nerves.
"The stand-off between the US and North Korea never went away, and as of last night it is back in the forefront of traders' minds.
"Tensions have shifted up a gear, and dealers are dumping stocks as they don't want to remain long while the political situation plays out."
On the currency markets, the pound was experiencing a mixed session, slipping 0.3% against the euro to 1.07, but rising 0.1% versus the US dollar to 1.29.
The greenback was down against a host of major currencies, helping the euro reach an 18-month high and break through the psychologically important 1.20 US dollar mark.
The fall was driven by anxiety over North Korea coupled with concerns about a potential hit to the US economy from tropical storm Harvey.
Traders were also pencilling in the prospect of US Federal Reserve holding back from hiking interest rates this year.
The oil price also responded to the severe weather hammering Houston, Texas, as production was hampered by a number of refineries going offline.
However, gains at the beginning of the session eased back by the time the FTSE 100 closed, with Brent crude dropping 0.6% to 51.59 US dollars a barrel.