The FTSE 100 has fallen as much as 3.5% as fresh eurozone concerns pushed the index down to the 4,900 mark.
The blue chip index was down 179 points at 4,897 shortly after 1pm BST, with miners Xstrata, Vedanta,GKN and Glencore among the largest fallers, each dropping between 7% and 9%.
Shares then recovered some losses as the index rose off its lows to 4,923, but the sole risers remained supermarkets Tesco and Morrisons, the former up 1.76% ahead of interim results tomorrow after UBS upgraded the stock from neutral to buy.
Financials also came under renewed pressure after Belgium and France attempted to reassure markets over the stability of Belgian bank Dexia. The countries said they would safeguard creditors and guarantee the bank's financing amid concerns over its solvency and liquidity.
Further falls came as Deutsche Bank announced it would no longer be able to reach its €10bn pre-tax profit target for 2011.
Dexia fell as much as 37%, on top of a 10% fall on Monday, while in the UK, Lloyds Banking Group fell 7.4% to 31p, with Barclays down 7% to 145p and RBS dropping 6.4% to 21p.
The pattern was much the same in Europe, with France's Société Générale falling 5.9% to €17.85 and BNP Paribas down 6.3% to €26.86. The country's leading share index, the Cac 40, was down 3.2% at 2,832.
In Germany, Deutsche Bank fell 7.3% to €23.9p, while rival Commerzbank dropped 6.8% to €1.64 as the Dax fell 3.9% to 5,165.
The euro dropped to a nine-month low against the dollar of $1.314 before recovering slightly to $1.318.
Service increasingly key
Aiming to be' top three' UK financial planner
Lowest measure since index launched in 1995
Complaints into double figures
Despite lower median annual earnings