PRESS ASSOCIATION -- World markets have slumped as fears of a global recession were reignited by a gloomy outlook from America's central bank.
The FTSE 100 Index was 4.4%, or 231.2 points, lower after the US Federal Reserve flagged "significant downside risks to the economic outlook" and failed to inspire traders with its latest emergency measures to prop up the country's wavering recovery, which included a process dubbed Operation Twist.
The unusual move, designed to keep US interest rates lower for longer through short-term government loans in favour of notes that expire over a lengthier period, disappointed markets, which had surged in recent days in the hope that the Fed might embark on a third package of quantitative easing.
Ben Potter, analyst at IG Markets, said: "Judging by the huge amounts of selling, it seems the market doesn't believe Operation Twist is enough to kick-start the spluttering economy."
The Dax in Germany dropped 4.3% while France's Cac-40 fell 5.1% following a similarly shocking performance on Wall Street, where the Dow Jones Industrial Average closed 2.4% down.
Oil prices tumbled on global growth fears with Brent crude in London dropping nearly 2% to 106.79 US dollars a barrel and light crude on the New York Mercantile Exchange off 4.5% to 82.02 US dollars a barrel.
The grim outlook from the Fed - which pointed to weakness in the US labour and housing market - was the latest shock to already volatile global markets, most recently shaken by financial uncertainty in Greece, which is verging on a debt default.
The dismal picture was compounded by weak manufacturing data in China and from Purchasing Managers' Index data in the eurozone, which revealed a decline in both manufacturing and services.
Fears of a slump in demand for mineral resources saw declines for Vedanta Resources, Kazakhmys and Antofagasta which all lost nearly 10% of their value, while weak sentiment towards the banking sector was aggravated when agency Moody's downgraded credit ratings for three major US banks - Bank of America, Wells Fargo and Citigroup.
Barclays was down 7%, Lloyds Banking Group was off 7% and Royal Bank of Scotland dropped 4%, but some economists still expect the Fed to roll out so-called QE3 as early as November - which would boost asset prices around the globe by pumping more money into the financial system.