Markets slumped into the red again as traders saw little respite from recent volatility.

Sharply lower oil prices sent heavily weighted BP and Royal Dutch Shell into the red, while miners also littered the fallers board, leaving the FTSE 100 dropping below the 6000 mark again, down 70.8 points at 5961.5.

The Dax in Germany and Cac 40 in France were also lower, down 1.9 per cent and 2.6 per cent respectively, with the escalating Volkswagen emissions scandal returning to the fore after the group admitted its cars were also affected across Europe.

In New York the Dow Jones Industrial Average fell more than 200 points in early trading.

Markets saw strong gains yesterday with the FTSE 100 surging by nearly 100 points.

The pound was higher against the US dollar, at just under 1.53, as jittery traders waited to hear a speech tonight by US Federal Reserve chairwoman Janet Yellen looking for clues on the timing of the Fed's first interest-rate hike in nearly a decade. Sterling was a cent lower against the euro at just over 1.35.

Among stocks in London, BP dropped two per cent or 6.6p to 322.9p, while Shell was 36p lower at 1539.5p.

Sainsbury's was also lower ahead of its trading update next week, with shares hit by a downbeat broker note from HSBC which cut profit forecasts for the chain. Shares fell 5p at 223.7p.

Engineer Smiths Group was another faller, giving back some of the gains seen on Wednesday after full-year results showed higher profits but falling sales. Shares fell 64p at 975p.

Lloyds Banking Group was one of the biggest blue chip risers after reports that a leading fund manager expects the lender to become a big dividend payer within two years.

Shares in the bank rose 0.89p at 73.8p.

High street retailer Next was also among the top gainers, ahead 40p to 7535p after a price upgrade from broker Nomura.

In the FTSE 250, Thomas Cook climbed almost three per cent, or 3.1p to 119p, after saying it made good progress over the summer despite "external shocks" including the deadly terror attack in Tunisia.

With the North African country effectively shut down to tourists, it saw a surge in bookings to Greece and Egypt. Long-haul and own-brand sales were also doing well.

Rival TUI had enjoyed a bounce after the Thomas Cook cheer, but later lost gains due to the wider market falls, down 29p to 1179p.

Discount retailer Poundland was a big faller on the FTSE 250 after warning over half-year profits as it also revealed takeover target 99p Stores was in weaker financial health than previously thought.

The news emerged as Poundland announced details of a £50m share placing to fund the £55m takeover.

Shares fell more than 13 per cent, or 41.6p, to 268p.

The biggest risers in the FTSE 100 Index were Randgold Resources up 206p at 3946p, Fresnillo up 20.5p at 621p, Imperial Tobacco up 66p at 3465p and Lloyds Banking Group up 0.89p at 73.8p.

The biggest fallers in the FTSE 100 Index were Glencore down 10.5p at 98.6p, Smiths Group down 64p at 975p, Anglo American down 33.5p at 624.6p and Rolls-Royce down 29p at 650.5p.