The FTSE 100 Index was on course for its worst week in eight months today as it fell by as much as 130 points to its lowest level this year amid deepening fears over the Chinese economy.
Trading screens turned red as a manufacturing index from the world's second biggest economy showed the sector shrinking at its steepest pace since the height of the global recession six years ago.
It added to anxiety that has built up in recent weeks over China's slowing growth and the depreciation of the yuan as well as plunging commodity prices.
The worries have seen the FTSE 100 officially enter "correction" territory, more than 10% down from its all-time closing high of 7104 in April and at the lowest level it has been for eight months.
It was on course to end this week nearly 5% lower than it finished last Friday, making it the worst week since last December, wiping around £80 billion off the value of London's top 100 listed companies.
The fall would be the ninth in a row for the top-flight index, matching a losing streak last seen in 2011 that has not been exceeded since 2003. The latest run has seen the value of the constituent companies down by more than £120 billion.
Blue-chip shares were down by more than 2% in the latest session, making it one of the worst days for the index this year.
It previously fell by 1.97% on June 29 at the height of the Greek debt crisis and by 2.53% on March 10. Earlier this week, on Wednesday, it dropped 1.88%.
The turmoil is a far cry from the euphoria of record highs seen earlier this year when the FTSE 100 soared past the 7,000-mark for the first time, reaching an intraday high of 7122.7 in April before plunging back to earth.
Since then it has been weighed down by worries over the Greek debt crisis as well as anxiety about when US interest rates would rise.
Fears over debt-laden Greece have subsided somewhat since it reached agreement with creditors on a new 86 billion euro (£62 billion) bailout package – though the prospect of snap elections next month spells more uncertainty in the short term.
But it is China's woes that have overtaken as the chief headache for markets, with global share indices taken by surprise last week by Beijing's devaluation of the yuan to help its struggling exporters.
The Chinese government has meanwhile been struggling to try to contain steep slides in Shanghai's main share index. It dived another 4% on Thursday.
Analysts at Societe Generale said: "Be it via the crash on the equity market or the surprise FX regime change, China has sent shockwaves through global markets and raised numerous questions on the outlook."
They said sustained falls across world markets raised the possibility of a wider economic crisis to which countries weakened by the last recession may struggle to respond – though they did not expect this scenario.
"To our minds, the gradual recovery taking shape in the advanced economies can weather what we expect will be a prolonged period of weaker growth in a number of the major emerging markets," the analysts said.