London shares plunged by 2.5 percent on Tuesday, mirroring falls elsewhere in Europe as investors sought cover from fresh banking troubles.
"Investors are facing the real possibility that bank exposures to sovereign debt and an increasing shut down in interbank lending markets could trigger a new banking crisis," said Joshua Raymond, chief market strategist at City Index.
"Bank shares have seen high volatility which in itself is exacerbating investor fears and uncertainty over the crisis." Raymond added that traders were "selling a lot their holdings in banks in a protective move."
Banking and related stocks bore the brunt off the London selloff, with stockbroker Hargreaves Lansdowne losing 7.88 percent to 412.60 pence and Barclays shedding 7.62 percent to 144.35 pence.
Engineering groups also suffered amid growing fears for the global economy. IMI lost 7.15 percent to 636.50 pence, Weir Group fell 7.03 percent to 1,375 pence and GKN dropped 6.55 percent to 157 pence.
On the currency markets, a pound was worth 1,5407 dollars, down from 1.5459 dollars on Monday night, and 1.1579 euros, down from 1.1657 euros a day arlier.
Source: AFP European Edition