Updated: The FTSE dropped more than 3% in the first six minutes of trade on Friday as it tracked US and Asian markets sharply lower amid the ongoing global sell-off.
London's leading index was trading as low as 5,205 at shortly after 8am but has recovered slightly to 5,271 (12.10am), still down 2.26% on yesterday's close.
RBS is the biggest faller, plummeting 7.66% to 27.96p. The bank was trading more than 600p in 2007.
Elsewhere in Europe, the Cac 40 in France is down 0.43% at 3306.09, while Germany's Dax index is down 1.92% at 6291.34. Italy's index is up 1.31%.
In the US, losses accelerated overnight to leave markets nursing their worst single day performances since the financial crisis, with investors continuing to panic over the eurozone sovereign debt crisis and slowing global growth.
The Dow Jones fell by 512 points, down 4.3% to 11,383, its largest points fall since December 2008 and the biggest percentage drop since February 2009. The Nasdaq fell by 5.1% to 2,556.
The S&P 500 also tumbled by its largest percentage fall since February 2009, falling 4.8% to 1,200, an eight-month low. Significantly for summer market activity, trading volumes were said to be far higher than usual.
Earlier, an ECB press conference on Thursday did little to reassure investors after the central bank refrained from clarifying whether it would buy Italian and Spanish bonds.
The FTSE ended down 3.4% at 5,393 with the EuroStoxx 50 also down 3.4% at 2,412. Commentators are suggesting both could track US indices down further this morning.
The sell-off was mirrored around the globe, with Brazil's Bovespa index the worst hit after a 5.8% fall on the day. In Asia, Japan's Nikkei is down 359 points, or 4.3%, to 11,384, while Hong Kong's Hang Seng index has fallen 4.9% to 20,805.
Gold yesterday reached a record high of $1,681, before shedding around $40 yesterday afternoon, the suggestion being investors were selling holdings in order to cover losses elsewhere. Its rise resumed in Asian trading to reach $1,657 an ounce.
Demand for US treasuries spiked as the flight to safety intensified. 10-Year US treasury yields fell by 21 basis points to 2.41%, and have now fallen by 50 basis points since last Friday, the largest weekly fall since November and December 2008. Two -year yields reached a record low of just 0.25%.
Investors are now looking to the monthly US non-farm payrolls report in the hope that employment figures produce a positive surprise. The consensus numbers forecast a headline increase of 85,000, following an 18,000 rise in June that was significantly below market expectations.
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