Update (1:07pm): The FTSE briefly joined the bear-market club on Tuesday before regaining most of the day's losses as global markets continue to experience extreme volatility.
London's leading index joined Germany's DAX and the French Cac 40 in falling more than 20% from its latest cycle peak, meeting the technical definition of entering a bear market.
It had slumped to as low as 4,796, more than 4.5% down on the opening value. However, as of 1:07pm, it sat 10 points higher at 5,076.
Other major European indices were also recovering after a turbulent morning.
Sell-offs in London followed huge overnight losses in the US which triggered a significant sell-off in Asia.
Financial were among the biggest losers at 1pm, with Royal Bank of Scotland Group 6% lower at 25.6p. Investec lost almost 3% to 391p.
Asian markets suffered significant losses in trading on Tuesday after an overnight sell-off in the US saw the Dow Jones shed more than 630 points.
Japan's Nikkei 225 index recovered in late trading on Tuesday to close 1.7% lower, having earlier fallen almost 3% to below 9,000 for the first time since the nation was hit by a deadly earthquake and tsunami in March.
Elsewhere South Korea's Kospi lost 3.6% - having earlier declined more than 5% - and Hong Kong's Hang Seng dropped 6% on fears the US is heading for a recession.
China's monthly inflation figures did little to quell investors' fears, with consumer prices up from 6.4% to 6.5% in July, suggesting government measures to dampen growth have failed.
Overnight in New York, the Dow Jones shed 635 points, or 5.55%, to 10,809, its biggest one-day decline since October 2008 and the sixth largest on record.
It came despite attempts by President Barack Obama to calm investors' fears following the unprecedented move by ratings agency Standard & Poor's (S&P) to downgrade the nation's debt from AAA.
The Federal Reserve is set to meet today to discuss the crisis with speculation growing that chairman Ben Bernanke may do more to help restore confidence, with Harvard University economist Kenneth Rogoff predicting the central bank will embark on a third round of asset purchases.
Analysts said investors were concerned about how Europe and the US will work their way out of a high debt burden if the global economy slows.
‘Important to have an anchor’
Report to be written by TPR
Lack of innovation for solutions
Some 2,000 consumers affected