Update 4pm: Heavy losses in the battered US markets have spread to the UK and sent the index of 100 leading shares down 3.3%.
The FTSE 100 was down 171.40 points to 5,075.59 as UK investors reacted to sell-offs in the US following the first opening bell after Standard & Poor's downgrade of the country's credit rating.
In a move which has divided commentators and investors, S&P's became the first ratings agency to downgrade the US' prized AAA-rating.
In response Wall Street opened lower, with the Dow Jones off 2% or 227 points, at 11,217 points, and the S&P 500 down 1.8% or 21.8 points, at 1,177.5.
By 4pm the Dow had dropped 358.78 points to 11,085.83, a fall of 3.15%.
Shares across Europe also remained under pressure as investors fretted over the latest attempts by policymakers to avert a widespread crisis across the continent.
A statement from the G7 that all necessary measures to support financial stability and growth would be taken failed to calm investors who continued to pile out of stocks.
In reaction, the German Dax was down 201.6 points, at 6,034.6, while the French Cac 40 shed 82.3 points to 3,196.
As investors fled shares, gold continued to trade strongly, up at $1,700, albeit off highs seen earlier.
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