London's leading shares index fell 4.5% yesterday - the 9th biggest fall in its history - amid fears the world is sliding into a double-dip recession.
The FTSE 100 Index lost 239.4 points - wiping more than £62.3bn from its value - with heavy losses for the banking sector, including taxpayer-backed banks Royal Bank of Scotland and Lloyds Banking Group.
The latest slump was triggered by a gloomy report from economists at investment bank Morgan Stanley, which slashed its forecasts for global growth.
But eurozone debt fears, poor economic data in the US, and fears over China raising interest rates and limiting its demand, all played their part in the day's rout.
The FTSE 100 Index recorded its biggest fall since November 6, 2008 and lost almost all the gains made in the recent four-day rally.
The banking sector was hammered by concerns over the eurozone debt crisis - triggered earlier this week by the Paris meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel.
Traders were disappointed by the lack of direction offered by the European leaders - who failed to back proposals to roll out eurozone bonds to fix the region's debt problems and also raised the prospect of a so-called Tobin tax, a levy on City trading.
Elsewhere, the European Central Bank made a loan of 500 million US dollars (£302m) for a week to an unnamed bank in the first use of this emergency facility in more than a year.
RBS stood 11% lower at 22.3p - less than half the 50p-per-share price the Government paid for its 81% stake in the bank - and Lloyds dropped 9% to 29.8p, compared with the 63p paid for by the Government for its 41% stake. Barclays also lost 11% of its value.