The FTSE 100 Index plunged more than 3% today as investors fretted about a possible recession in the US.
After dropping more than 120 points in the first hour of trading, the Footsie was hit by a fresh wave of selling taking the index down a further 80 points to 5672 by mid-morning.
The 204.6 point drop took the index to its lowest level for around 18 months.
The fall came as Asian markets plummeted overnight after Wall Street’s Dow Jones Industrial Average slipped into the red on Friday, with investors left unimpressed by the US Government’s tax-relief plans to stimulate the economy.
Heavily-weighted mining stocks also fell after speculation of a fresh offer from BHP Billiton for Rio Tinto failed to materialise. Bid target Rio fell 319p to 4381p, while BHP slipped 91p to 1287p.
Peers Vedanta Resources and Kazakhmys – off 136p to 1596p and 81p to 1074p respectively – also suffered as concerns over faltering global growth weighed on the sector.
Plumbing and heating giant Wolseley was among the leading Footsie fallers - down nearly 6% after the company warned of a deteriorating US housing market and profits down by almost a third so far this year. Shares fell 42p to 674p.
Standard Life also lost 6% amid reports that Trevor Matthews, the head of UK life and pensions, was being lined up as the new chief executive of Friends Provident, which is currently a bid target for a US private equity firm. While it is thought that Mr Matthews turned down the job last week, shares in Standard Life still dived, off 14.35p to 197.4p.
Insurer Friends Provident was one of a handful of firms in positive territory after JC Flowers said it was eyeing a reported £4.1 billion takeover. This pushed shares up more than 5%, or 8.7p, to 161.3p.
In the second tier, Northern Rock led the risers board as the market reacted positively to plans for a private sector rescue for the mortgage lender. Shares were up nearly 40%, 24.5p to 89p.