The FTSE 100 Index has slipped 81.3 points, or 1.5%, to 5539.6 points this morning, led by Vodafone.
Vodafone has dropped 1% to 116.25p on reports Deutsche Bahn AG may sell its 18% stake and Deutsche Bank AG may sell its 8% holding in Vodafone's Arcor unit.
Xstrata, which has made a $14.6bn hostile bid for Canadian miner Falconbridge, has declined 72p, or 3.8%, to 1,823p.
Anglo American has also lost 73p, or 3.8%, to 1,870p.
In Japan, the Nikkei 225 Stock Average slumped 614.41 points, or 4.1%, to 14,218.6 points, its biggest points loss since the day after the 11th September 2001 terrorist attacks.
Exporters led declines as a seventh Federal Reserve official warned US inflation is too high, pointing to further interest-rate increases in Japan's biggest overseas market.
Canon lost 290 yen, or 3.8%, to 7,390, Honda dropped 290 yen, or 4.1%, to 6,740 and Toyota Motor fell 240 yen, or 4.2%, to 5,530.
Commodity suppliers also slid on concern higher interest rates will slow global demand for raw materials.
Inpex Holdings fell 36,000 yen, or 4.1%, to 850,000 and Sumitomo Metal Mining dropped 78 yen, or 5.9%, to 1,243.
In the US, the Dow Jones industrial average fell 99.34 points, or 0.91%, to 10,792.58 points, its lowest close since February, amid persistent worries about rising interest rates and slower economic growth.
ConocoPhillips fell 1.6% to $59.63 and Exxon slipped 0.9% to $58.27 after crude oil futures settled down $1.27, or 1.8%, at $70.36 a barrel.
General Motors advanced 1.7% to $25.78, helping to limit losses on the Dow. Bankrupt auto parts maker Delphi announced a deal with the United Auto Workers union late on Friday, which was seen as a step toward avoiding a strike which would cripple output at GM, Delphi's biggest customer.IFAonline
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