The FTSE 100 joined a fresh global market sell-off and the euro hit new four-year lows on jitters for the world economy after a fall in Chinese factory production and worries over the ability of European banks to weather a escalating eurozone crisis.
The euro fell more than 1pc against the dollar to $1.2115 as deteriorating sentiment along with rising tensions in the Middle-East following Israel's storming of Gaza-bound aid ships bound fuelled safe-haven demand for the dollar.
London's index of leading UK shares had lost 1.6pc when New York markets opened, with the Dow Jones, S&P 500 and Nasdaq down between 0.4pc and 0.8pc.
Investors digested news that production in China's factories was cut back in May due to falling orders at home and abroad and a warning that eurozone banks may have to write down a further €195bn (£165bn).
A 16pc fall BP's share price after its failure to cap the catastrophic oil spill in the Gulf of Mexico with its 'top kill' operation and talk of a potential US criminal investigation also weighed on shares in London.
Gold rose above $1,220 an ounce as investors bought the metal as a haven from risk.