Alarm bells rang across world markets after a 9% dive in Chinese shares and a sharp drop in the dollar and major commodities panicked investors.
The US Dow Jones Industrial Average tumbled more than 1,000 points in early trading.
Traders said investors were effectively being forced to sell to raise cash after widespread losses across markets and that the chain reaction had yet to reach its end.
“There is a snowball effect happening, with margin calls putting pressure on positions and creating forced sellers. Every order has been a sell today, across the board, so clearly people think we haven’t hit the bottom yet,” said Mark Ward, head of execution trading at Sanlam Securities.
At lunchtime, the blue-chip Ftse 100 had fallen 5.8% to 5,831.59 points, its lowest level since late 2012.
The index was heading for its worst one-day fall since September 2011.
This was a slightly less painful fall than the pan-European FTSEurofirst 300’s 7.2% drop.
The Ftse 100, which marked its biggest weekly loss of the year on Friday, has now fallen for 10 sessions in a row, its longest continuous decline since 2003.
The mining sector led the fallers, dropping 9% to its lowest level since 2009 as fears around China’s growth continued to bludgeon commodity prices.
Glencore and Anglo American fell to fresh all-time lows.
Oil stocks Premier Oil and Tullow Oil fell 11 to 14%.
UTV Media was one of the few stocks to outperform after saying it was in talks to sell its television assets.
UK chancellor George Osborne said he did not expect the slump in Chinese share prices to pose a threat to Europe’s economy.
“I am reasonably confident, although I don’t think that we can be unaffected by what happens in China, I don’t think it’s going to cause immediate sharp problems in Europe,” Osborne said in response to a question from a reporter in a visit to Sweden.
While the volatility in China’s market was “a cause of real concern,” the main issue was the underlying growth of the country’s economy and officials in Beijing were focussed on reforms to ensure consumption-led growth, he said.