Updated 1.45pm: The FTSE 100 dropped 2% in midday trading as uncertainty over the composition of the British government continues.
London's leading index slumped more than 112 points, or 2.09%, to 5,274.71.
Global markets all soared yesterday as news of the EU's 750bn euro rescue package buoyed investors.
However, Gordon Brown's resignation late yesterday afternoon and news the Labour party will fight the Tories to form a new Government caused sterling to plummet and the FTSE to fall early today.
Sterling had risen against the dollar throughout yesterday and was trading at $1.5020 as Brown spoke, but slid to $1.4892 minutes later.
In early afternoon trading today, it was down even further at $1.4773, a drop of 0.71%, and analysts expect it to come under further pressure if the political uncertainty is not resolved quickly.
However, the government bond market is holding firm with the yield on 10-year gilts steady at 3.92% this morning, after trading around the 3.9% mark yesterday.
Overnight in the US, the Dow Jones closed up 3.9% at 10,785.14 points - its biggest gain in over a year - buoyed by euphoria over yesterday's bail-out plan. The market is due to open again within the hour.
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