The FTSE suffered a sharp drop in afternoon trading to close more than 3% in the red as concerns over EU debt and another Greece bomb attack rattled markets.
The FTSE finished on 5262, down 3.14% or 170 points, after a volatile afternoon trading session played out against the background of a second bomb attack in Greece. Fears now abound Greece is on the verge of serious and widespread social unrest.
The political situation in the UK also played its part in the FTSE's descent into the red. Shares slipped as investors feared austerity measures to be put in place by the UK government, coupled with an expected hike in VAT, could stall the recovery.
London's leading shares were sliding throughout the day's trading.By mid-day, it was down 1.73%, or 93 points, but at at approximately 14.30 GMT shares staged a sharp decline before markets opened in New York. By 15.15 GMT, the index was down 2.79%, or 151 points.
Reports the EU is set to push through controversial legislation on hedge funds, coupled with the UK government's expected clamp-down on banks, have also rattled the banking sector. Barclays (down 6.26%), Royal Bank of Scotland and Lloyds were all lower.
The euro, meanwhile, hit an 18-month low against the dollar, down 0.6% at $1.2445 as fears mounted over the EU's debt problems. At one point, the single currency fell as low as $1.2433 - its lowest level since November 2008.
Deflation in Spain, where consumer prices are down 0.1%, and reports French President Sarkozy threatened to exit the euro if a viable Greek rescue plan could not be agreed also shook investor confidence.
Miners also retreated on the back of a slump in commodity prices, with Xstrata (down 7.30%), Rio Tinto and BHP Billiton all in the red. Kazakhmys and Antofagasta also weighed down on London's shares as investors fretted over the fall-out from a slow-down in demand. The losses came as copper futures fell 6 cents to trade at $3.16 per pound.
Meanwhile, as at 17.15 GMT, the Dow was down 2.06%, or 222 points, to 10560. Bank of America was leading the downward plunge, down 4.15%.
The index started trading in negative territory and was down 1.46%, or 157 points, at 15.15 GMT as ongoing concerns over sovereign debt levels continued to unsettle investors.
Better-than-expected US retail figures failed to stop the slide into the red. According to the Commerce Department, retail sales rose 0.4% in April.
