Britain's top share index slid 6.8 percent early on Wednesday as the global financial crisis raised fears of a deep recession, battering heavyweight commodity stocks, and banks remained weak despite a UK rescue package.
By 0804 GMT, the FTSE 100 was down 316.8 points at 4,288.5 to a fresh four-year low. The index has fallen 31.5 percent so far this year.
Most UK banks extended their battering this week, with the FTSE 350 banks index down 7.8 percent, despite the UK government unveiling a multi-billion pound support package for the sector.
Finance Minister Alistair Darling said in a statement the plan would offer banks short-term liquidity, make new capital available to banks and give the banking system enough funds to maintain lending in the medium-term.
HSBC, Lloyds TSB, Royal Bank of Scotland, Barclays and Standard Chartered sank between 5.9 and 17.2 percent.
HBOS was up 16 percent, the only gainer on the index.
HSBC said it had no current plans to utilise the initiatives by the UK authorities to recapitalise the country's struggling banking sector.
"The UK market is down a lot less than other European markets this morning. It tells its own story. Obviously equities are not the flavour of the month to put it mildly, but the UK appears to be lifted … preventing it from collapsing," said Peter Dixon, UK economist at Commerzbank.
"We are still working through the implication of this … where we go from here. Certainly the initial reaction is that it is not very positive but it could be a lot worse."
The pan-European FTSEurofirst 300 index was down 7.1 percent.
Wall Street and Asian markets fell sharply again overnight, with Tokyo's Nikkei average down 9.4 percent, as fears mount that the rapidly spreading credit crisis would drag the global economy into a deep recession.
U.S. Federal Reserve Chairman Ben Bernanke said the U.S. economy was being battered by a financial crisis of "historic dimension" and that the risk for inflation has eased with the falling prices for oil and other commodities.
Other financials fell, with insurers Prudential, Old Mutual , Legal & General and Aviva losing 2.8 to 6.2 percent, and hedge fund Man Group dropping 2.8 percent.
Commodity stocks also sank along with base metal and crude prices on slowing demand as global growth eased.
BP, Royal Dutch Shell and BG Group dropped 4.3 to 6.1 percent, while miners BHP Billiton, Rio Tinto, Anglo American, Eurasian Natural Resources, Xstrata and Vedanta Resources sagged 4.1 to 7.3 percent.
Sainsbury slumped 8.5 percent, despite Britain's No. 3 supermarket group posting second-quarter underlying sales towards the top end of analysts' forecasts. The group said the economic environment was set to remain "extremely challenging".
Other retailers also fell on fears of slowing growth and credit crunch, with Marks & Spencer off 4.3 percent and Next down 3.2 percent.
Tesco, Morrison Supermarkets and Kingfisher also went ex-dividend.
