London's FTSE 100 Index fell to its lowest level for more than two months as global stocks were hit amid fears over an imminent US interest rate hike and in the wake of the EgyptAir plane crash.
The top flight closed 1.8% lower, down 112.5 points at 6053.4, wiping £29 billion off the value of blue chip stocks.
Travel and leisure firms were among those in the red, with investors spooked over the mystery of the Egyptian plane crash, as well as warnings over a slump in bookings from Thomas Cook following recent terrorist attacks.
The prospect of another rate hike in the US was also unnerving markets after minutes from the Federal Reserve's April committee meeting signalled another hike may be on the cards if economic conditions keep improving.
On Wall Street, the Dow Jones Industrial Average was under pressure, down more than 1% at the time of close in London, while t he Dax in Germany closed off 1.5% and France's Cac 40 finished 0.9% down.
But in currency markets, the pound continued its rally thanks to better-than-expected UK retail sales figures.
Official data showed retail sales increased by 1.3% compared with March as shoppers put uncertainty about the EU referendum aside to go on a spending spree.
Disappointing figures for March were also revised and were not as bad as previously feared.
Sterling - which was boosted on Wednesday by a poll showing Britons support staying in the EU - edged higher again to 1.46 US dollars and held firm at its two-month high at 1.30 euros.
Among stocks, Thomas Cook tumbled 19% in the FTSE 250 Index as it revealed summer bookings were down 5% and said it was seeing a "sharp decline in demand" as a result of the Brussels terror attacks.
Demand for trips to Belgium and Turkey were "significantly" down on last year, it added.
Revenues for the first half of the year dipped from £2.74 billion to £2.67 billion and pre-tax losses narrowed from £303 million to £288 million.
Shares plunged 17.1p to 72.5p.
Thomson rival TUI was 2% lower in the top tier, down 25p to 1008p, while among airlines, easyJet fell 2% or 26p to 1461p, and British Airways owner International Consolidated Airlines dropped 12p to 515p.
Royal Mail was another hefty faller, down 4% or 19.6p to 488.4p, as it posted a 33% slump in full-year pre-tax profits to £267 million as it took a hit from transformation costs.
It said market conditions remain "challenging" despite rising parcel volumes.
But Mothercare was enjoying better fortunes after it reported its first annual bottom line profit for five years, at £9.7 million compared with a loss of £13.1 million the previous year, thanks to turnaround efforts.
Its shares leapt 5p to 123.8p.
The biggest FTSE 100 risers were 3i ahead 12p at 499.5p, Royal Bank of Scotland ahead 3.1p to 226.8p, Berkeley Group 33p stronger at 3092p and ITV 2p higher at 207.5p.
The biggest FTSE 100 fallers were Fresnillo down 80p at 1064p, Merlin Entertainments off 20.4p at 411p, Royal Dutch Shell 77.5p weaker at 1663.5p and Anglo American 26.8p lower at 579.3p.