Holly Williams and Roger Baird
London's FTSE 100 index of leading shares collapsed below the 6,000 mark as volatility hit markets across Europe again after a concerted sell-off among miners.
Miners led the decline after a series of broker downgrades amid fears over China, as well as a fall in commodity and oil prices, compounding concerns over global growth.
Disappointing figures for UK borrowing and a survey suggesting manufacturing growth has stalled added to the stock market woes in London, with the FTSE 100 down nearly 3% or 172.9 points at 5,935.8.
The Dax in Germany dropped 3.8% and France's Cac 40 was 3.4% lower as European markets were also hit by the escalating Volkswagen emissions rigging scandal, which one market analyst described as an "auto sector shaking incident".
In New York the Dow Jones Industrial Average was down over 200 points in early trading.
Volkswagen shares were down another 18% in Germany after a 19% plunge yesterday, with the group admitting that 11 million vehicles worldwide are fitted with software to cheat emissions tests as it took a 6.5 billion euros (£4.7 billion) profit hit to deal with the scandal.
The stock market falls follow heavy declines on Friday after the US Federal Reserve decided not to raise interest rates, largely due to the concerns over the health of the global economy, sparked off by China's slowing growth.
In London, sentiment was hurt further as official figures showed Britain's deficit spiralled to £12.1 billion last month, marking the widest August shortfall in government funding for three years.
The latest manufacturing survey from the CBI also showed activity in the sector stalled in September for the first time since early 2013.
The pound fell on the economic gloom, down a cent at just under 1.54 US dollars and a nearly cent lower at 1.38 euros.
Mining group Glencore was the biggest faller on the FTSE 100, down almost 11% or 12.7p to 106.4p, with Anglo American also off 46.8p at 648.1p.
RSA Insurance was the only riser in the top flight as it edged 2.9p higher to 406.2p after losing more than a fifth of its value on Monday after rival Zurich pulled out of a £5.6 billion takeover.
A raft of stocks were lower in the second tier amid profit warnings and disappointing results.
The AA was 13% lower, down 43.7p to 289.6p, after revealing it slumped into the red with half-year losses of £63.6 million and said its turnaround could be held back by new insurance premium taxes and EU employment legislation.
All Bar One owner Mitchells and Butlers was 7% or 24.2p down at 327.2p after revealing it was replacing chief executive Alistair Darby as it warned weak trading would leave full-year profits at the bottom end of market expectations.
Phil Urban, who joined M&B as chief operating officer in January, will take over as chief executive this weekend.
Weak summer trading at AG Barr also saw it alert over profits, with the group now expecting annual results broadly in line with the previous year.
Shares fell almost 6% or 32p to 530p.
The only one riser on the FTSE 100 Index was RSA Insurance up 2.9p at 406.2p.
The biggest fallers on the FTSE 100 Index were Glencore down 12.7p at 106.4p, Johnson Matthey down 204p at 2318p, Antofagasta down 41p at 524.5p and Anglo American down 46.8p at 648.1p.
ends
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