Banks and commodity stocks fell sharply on Friday as the top share index extended losses into a sixth straight trading day, battered by a global debt crisis and unmoved by US jobs data easing fears of another economic recession.
London's blue chip FTSE 100 closed down 146.15 points, or 2.7 per cent at 5,246.99, as investors continued to pile funds into safer havens such as bonds, gold and the Swiss franc.
The FTSE 100 came off a session low of 5,202.62, but concerns over the health of the global economy remained despite US non farm payrolls offering hope the world's biggest economy was not sliding into a fresh recession.
"Many of the buy trades we saw from investors were placed on very short term contracts, emphasising that the concerns over global growth will not disappear with today's jobs figures," Joshua Raymond, chief market strategist at City Index, said.
The benchmark index has shed 9.7 per cent in the last five trading days, its worst weekly performance since just after the collapse of Lehman Brothers in 2008.
Investors are worried that in trying to keep a lid on the global debt crisis, growth will be curtailed which will feed through to corporate earnings.
"The world has changed in the past few weeks. Growth and credibility questioned," Citigroup analyst Jonathan Stubbs said.
"Equity markets have moved to price in a circa 20 percent reduction in earnings expectations from current levels and closer to a mild recessionary outcome."
Miners and integrated oil stocks fell furthest while banks also took a beating on persistent anxiety about their exposure to global debt turmoil.
Royal Bank of Scotland shed 6.9 percent after the part-nationalised lender posted a pretax loss of 678 million pounds in the second quarter.
The bank's loan book deteriorated, driven by losses on Greek government bonds and little sign of improvement in Ireland.
Peer Barclays (BARC.L) shed 5.1 per cent and Lloyds Banking Group, which skidded 10 per cent lower on Thursday after reporting losses, fell a further 6.1 per cent.
"Increasingly violent moves in stressed sovereign bonds, bank equity values and now all traded markets are driving a self perpetuating downward spiral," RBS said in a note.
"Absent is a turn in the economic data, it looks increasingly like a large and credible move by the authorities will be required to stabilise confidence."
The leaders of Germany, France and Spain scheduled crisis talks later in the day after China and Japan called for global policy cooperation to stop panic on the markets.
But with little cohesive cooperation seen so far, analysts feared further falls.
"What is clear now is that next week is critical for the markets," said Sandy Jadeja, chief technical analyst at City Index.
"If we see a break below this week's low then that would provide a technical confirmation for a trend continuation to the downside for the weeks ahead."
City A.M. Reporter