Global markets plunged amid increasing fears that a second wave of coronavirus could hit major economies, with traders in the US particularly cautious.
Reports that new infections were increasing in Texas, California and Arizona shook Wall Street and dragged already negative markets in Europe further into the red.
The FTSE 100 closed 252.43 points lower at 6,076.7p at the end of trading on Thursday, representing its sharpest daily fall since March.
David Madden, market analyst at CMC Markets UK, said: "Equity markets have come under huge pressure today as there are fears about a second wave of Covid-19 infections.
"In recent weeks global equities have enjoyed a rally on the back of the news that economies were reopening, but now dealers are worried the unwinding of the restrictions might trigger a fresh round of cases.
"As far as the markets are concerned it is a case of two steps forward and one step backwards."
The European markets were already in cautious territory before a dire opening from the US indices pushed them towards hefty losses.
The German Dax decreased by 4.47%, while the French Cac moved 4.71% lower.
Across the Atlantic, the Dow Jones dove by 880 points after the bell as sentiment took a nosedive from the optimism which had driven it to a three-month high just days earlier.
Meanwhile, sterling saw its recent rally come an end, plunging against the dollar and euro as UK firms announced thousands of job losses.
The value of the pound fell 0.95% versus the US dollar at 1.262 and was down 0.92% against the euro at 1.110.
Engineering and manufacturing firms were hard hit, with Melrose and Rolls-Royce plunging lower once again.
Catalytic converter manufacturer Johnson Matthey sank after it told investors it is cutting 2,500 jobs following a major hit from coronavirus.
The FTSE 100 firm also revealed plans to halve its dividend to shareholders as it announced the redundancies, which will remove more than a sixth of its workforce over the next three years.
Shares in the company dropped by 148p to 2,043p after it revealed it took a £60 million hit to profits from the virus.
British Gas owner Centrica also lost share value after it announced plans to cut 5,000 jobs as part of a major turnaround plan.
More than half of the job losses will come from the business's leadership roles, as Centrica revealed it would strip out three layers of middle managers, in a bid to cut bureaucracy.
Shares in the company slipped 1.71p lower at 40.12p at the end of trading.
Tui dropped lower after it extended the suspension of holidays for customers from the UK due to coronavirus travel restrictions. Shares fell by 41.7p to 444.6p.
The price of oil tumbled as fears of new infections, growth concerns and a jump in US oil stockpiles all put pressure on energy markets.
The price of a barrel of Brent crude oil decreased by 7.5% to 38.24 US dollars.
The biggest risers on the FTSE 100 were Polymetal, up 32p at 1,536p, Fresnillo, up 8.8p at 776.2p, LSE, up 28p at 8,094p, and Tesco, up 0.7p at 227.7p.
The biggest fallers of the day were Carnival, down 164.5p at 1,190p, Melrose, down 12.65p at 111.15p, ITV, down 7.72p, and Rolls-Royce, down 31.7p at 321.6p.
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