The FTSE 100 Index closed down 84.4 points, or 1.4%, at 5,791.5 points today, its biggest one-day point fall since 19 October and its weakest finish since 15 February.
Lower oil prices knocked oil heavyweights and analysts forecast a gloomy outlook for the direction of stocks like Vodafone and Alliance & Leicester.
Alliance & Leicester slid 4.98% lower to 1,069p as investors took profits on a stock that had gained almost 40% in the four months to the publication of its annual results on Monday. Those figures showed a slim rise in profits.
Mobile phone giant Vodafone fell 4.2% to 109p, taking more than 11 points off the index, after analysts cut estimates and target prices on the stock following the company's forecasts on Monday of slowing revenue growth and lower margins.
News and information provider Reuters also slipped 4.5% to 380p after investment bank Credit Suisse cut its rating to "neutral".
The oil and gas sector took 23 points off the index after US crude oil prices slid towards $60 a barrel. BP fell 2.3% to 630p and Royal Dutch Shell slipped 2.1% to 1,717p.
On the upside, shares in Royal Bank of Scotland, rose 2.7% to 1,909p after it said it would buy back shares worth up to £1bn in the coming year and raised its dividend sharply as it beat profit forecasts.
British American Tobacco gained 2.3% to 1,359p after it posted 2005 earnings near the top of analysts' forecasts.
In the US, the Dow Jones Industrial Average has fallen 101.98 points, or 0.9%, to 10,995.57 points after a report showed consumer confidence declined more than expected this month and Google said sales growth is slowing.
Google has slumped 33.16 points, or 8.5%, to $357.22 points after chief financial officer George Reyes said the company needs to find other ways to "monetize" business and that "most of what's left is just organic growth".
Hospira has fallen $8.08 to $38.96 after the hospital supplier said fourth-quarter profit, excluding some items, declined to 32 cents a share from 40 cents.
King has also dropped $3.33, or 17%, to $16.54. The drugmaker reported a fourth-quarter loss of 39 cents a share compared with net income of 6 cents a year earlier. Excluding some items, King said it had a profit of 38 cents, falling short of the 43 cent average estimate in a Thomson survey of analysts.
Apollo Group has slumped $7.47 to $51. The company said revenue in the second quarter ending today was $570m, according to preliminary data. Analysts, on average, expected of $586m in a survey by Thomson.
Meanwhile, Ford Motor has risen 6 cents to $8.14. The company expects a third straight profitable year in Europe on new models and markets such as Russia, Turkey and Eastern Europe, Ford Europe president John Fleming said.IFAonline
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