London's FTSE 100 Index plunged more than 3% yesterday as renewed doubts over the global recovery sparked a shares sell-off around the world.
Worries over slowing growth in China put mining firms under early pressure before fresh data underlined the flagging health of US consumers and deepened the market's dive into the red.
The FTSE sank below the 5000 mark to close 157.5 points down at 4914.2 - the blue-chip index's lowest close since last September - as worries over loan repayments to the European Central Bank also weighed heavily on the banking sector in global markets.
In the US, Wall Street's Dow Jones Industrial Average fell more than 2% in early trading while France's CAC 40 and Germany's Dax both tumbled more than 3%.
Will Hedden, sales trader at IG Index, said shares had "fallen off a cliff".
He said the mood in the market looks set to remain poor for the foreseeable future.
"News flow is doing nothing to calm fears about the fragility of the global recovery - with the FTSE flirting with the year's lows, many might be just taking the view that it is safer to be on the sidelines at the moment."
The massive share plunge wiped more than £40bn off the value of the FTSE 100 Index, which has lost almost 16% since mid-April.
The leading casualties in London were heavyweight mining stocks as metal prices fell after a US research group sharply lowered its estimates of Chinese growth in April, prompting doubts over demand for commodities.
Barclays meanwhile led banking stocks lower with a 6% fall amid concerns over a squeeze in inter-bank lending markets following the expiry of the European Central Bank's one-year emergency lending programme this week.
Dire US consumer confidence figures released later in the session yesterday compounded the massive sell-off and raised new doubts about the health of the world's biggest economy, pushing the Dow Jones Industrial Average back below the 10,000 mark.
Giles Watts, head of equities at City Index, warned: "Concern remains over how much lower we could go.
"With the FTSE now trading just above 4900, many see the market teetering just above significant technical levels of support which if breached could see much more aggressive retracements round the corner," he said.