Asian markets closed lower after purchasing managers' index data from China saw activity slump to the lowest level in more than two and a half years, and led analysts to warn that it may miss its economic growth targets this year.
Fears of the effect of a slowdown in China were compounded by PMI data for France, Germany and the Eurozone, which showed manufacturing sectors battered by falls in export orders and in an accelerating decline.
Sovereign bond yields across peripheral Eurozone countries also continued to rise.
An expensive short-term bond auction for Spain yesterday sent yields up. Its 10-year yields are still more than 6.5 per cent, while Italy's are above 6.9 per cent.
In London, risk-exposed stocks were hit, with banks, asset managers and mining groups lower.
Hedge fund giant Man Group was the biggest faller, down 4.9 per cent while among banks RBS lost two per cent; Lloyds was down 1.3 per cent and HSBC was off by 1.2 per cent.
Barclays bucked the trend, rising 0.4 per cent.
Australia-focused miners BHP Billiton and Rio Tinto suffered, losing 2.1 per cent and 1.7 per cent respectively, as a new tax on mining profits in the country won agreement in its parliament.
Compass Group, the world's biggest catering company, fell 1.9 per cent despite reporting bumper profits.
Pumps and drillmaker Weir Group also fell 1.5 per cent despite buying Texan firm Seaboard for $675m.
On the upside, metals specialist Johnson Matthey was 2.5 per cent higher after seeing profits rise 24 per cent in the first half and saying it expected an even stronger second half of the year.
Gold miner Randgold Resources gained 0.7 per cent as investors looked to safe haven investments.
Household goods giant Reckitt Benckiser and cigarette maker Imperial Tobacco also benefited from the drop-off in risk appetite.
Property groups British Land and Land Securities each gained 1.2 per cent.
US durable goods orders and personal income data are due out this afternoon.