Britain's top shares fell sharply on Tuesday as renewed fears over global growth and worries about Europe's debt problems hit risk appetite, sending commodity-linked assets and banks sharply lower.
By 1042 GMT, the FTSE 100 .FTSE was down 98.85 points, or 2.0 percent, at 4,972.83, and on course for its worst quarterly performance in 18 months.
Considering how many times the FTSE 100 has retested levels between 4,900 and 5,000 since September last year, there is clearly a battle going on between those investors who feel stocks are worth buying at these levels and those that believe stock values have outgrown the wider economic recovery, Joshua Raymond, market strategist at City Index said.
Miners tracked falls in base metal prices, with Rio Tinto (RIO.L) and Eurasian Natural Resources (ENRC.L) down 4.4 percent and 4.2 percent respectively.
Investors were shaken after Japanese industrial output fell 0.1 percent in May, suggesting the benefits of a rebound in exports to fast-growing Asian economies may be moderating.
And jitters mounted ahead of bank repayments to the European Central Bank this week. Banks must repay 442 billion euros ($546 billion) to the European Central Bank on Thursday, leaving a potential liquidity shortfall in the financial system of over 100 billion.
These concerns and worries over governments moves to try and solve the debt problems by cutting government spending, boosted the dollar and added to the pressure on metals prices ahead of what are expected to be weak U.S. non-farm payrolls at the end of the week. [USD/]
Banks were lower as concerns about debt exposure returned. Barclays (BARC.L) was a standout loser, down 3.0 percent, while sector heavyweight HSBC (HSBA.L) fell 2.5 percent.
The British blue-chip index is down over 12 percent so far this quarter, its worst such fall since the fourth quarter of 2008 when it fell 12.9 percent in the wake of the collapse of Lehman Brothers.
Technical analysts said the index was close to breaching support levels that could lead to a much bigger retreat.
Note that 4,927 is 38 percent Fibonacci retracement support from March 2009 low to 2010 high, so a weekly close below here should really tip the balance and send the index plunging, said Nicole Elliott, technical analyst at Mizuho Corporate Bank.
Energy stocks were a big drag on the index as crude prices fell back towards $76 per barrel CLc1.
Troubled oil major BP (BP.L) fell 1.7 percent, with Tropical Storm Alex set to strengthen into a hurricane on Tuesday, delaying the company's efforts to increase siphoning capacity at the gushing oil well in the Gulf of Mexico.
Vodafone (VOD.L) fell 2 percent as Credit Suisse cut its rating to neutral from underperform with an unchanged 160 pence price target, citing recent outperformance by the mobile telecoms group's stock.
Support services group Serco (SRP.L) fell 2.1 percent, along with the market, despite saying it was on track for strong revenue growth in 2010, and predicting its future performance would benefit from client demand for efficiency amid a state spending squeeze in Britain. (Editing by Dan Lalor)