With most of the ballots counted, the outcome of Britain's election remained too close to call, with results so far suggesting the Conservatives would be the largest party but fall short of a parliamentary majority.
The prospect of the first hung parliament since 1974 left the composition of the next government uncertain with markets already approaching full-blown panic about the euro zone's debt crisis spiralling out of control.
"We're back where we started, there was a bit of excitement when it looked like the Conservatives might get an overall majority, which briefly lifted sterling," said David Jones, chief market strategist at IG Index.
"But now we are still looking to what the make-up of the next government (will be) and what happens on that front will continue to drive the market."
The pound dropped to $1.4649, its lowest in a year, and weakened to 86.34 pence per euro in early European trade.
Futures on Britain's FTSE 100 were down 2.7 per cent, while financial bookmakers predicted the index would open 92-110 points lower.
US stocks plunged as much as 9 percent in late trade on Thursday before clawing back some of the losses, while Japan's benchmark Nikkei average fell 3.3 per cent.
UK government bond futures headed into the red after earlier hitting a contract high as initial optimism that the Conservatives could form a workable government gave way to fears about prolonged post-election uncertainty.
June gilt futures fell 54 ticks to 116.75, having scaled a contract high of 118.51 within the first hour of a specially extended trading session.
"There are various scenarios and we still don't know what shape the government will take," said Matteo Regesta, interest rate strategist at BNP Paribas. "If uncertainty prevails, I think you could see the gilt future drift lower."
The UK's blue-chip stock index has already slipped 5.3 per cent this week, on track for its biggest fall since March 2009.
Government bond and equity futures were open for a specially extended trading session to allow investors to react to the election results.
An outright win for the Conservative party, seen as the most willing to sharply cut public spending to tackle Britain's record deficit, would be welcomed by many investors.