The FTSE 100 closed down 142.18 points, or 2.6 per cent, at 5,411.11, its lowest close since early March. The blue chip index, which was closed for a holiday on Monday, shed three per cent last week.
UK-listed miners were slammed after Australia imposed a 40 per cent mining tax, and with metals prices sharply lower as the dollar rallied versus the euro on worries over Greek debt and after China raised bank reserve requirements again.
Eurasian Natural Resources, Antofagasta and BHP Billiton were the worst off, sliding 7.9 to 11.3 per cent.
Also, concern mounted that a record EU/IMF bailout for Greece would not stop a debt crisis spreading in the single currency area, sparking a selling frenzy in Eurozone financial markets yesterday.
“If any other country struggles and requires a bailout then they’re going to go cap in hand to the EU and the IMF as well, and they’re going to expect to be treated exactly the same way as Greece,” said Angus Campbell, head of sales at Capital Spreads.
Spanish Prime Minister Jose Luis Rodriguez Zapatero dismissed as “complete madness” a market rumour that his country would soon ask for €280bn ($240.2bn) in aid from the euro area.
Banks were weak on the FTSE 100, with Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland off 1.9 to 7.4 per cent.