Bank and commodity stocks were weighing on Britain's FTSE 100 at midday on Monday, with clouds gathering over the prospect for global growth as U.S. debt talks broke down and France was told it could lose its Aaa rating from Moody's.
London's blue-chip index was down 114.11 points, or 2.1 percent, to 5,248.83 by 11:56 a.m., to be headed for a sixth consecutive loss after falling 3.3 percent last.
In evidence of heightened anxiety, the FTSE 100 volatility index rose 8.6 percent. Banks, which have big exposure to European government debt, were hit hard.
Miners fell sharply, along with commodity prices, as the outlook for demand in the sector grew murkier and risk appetite ebbed away.
Riskier assets were roiled as U.S. plans to combat its debt were sent into in disarray, as a super committee failed to forge a $1.2 trillion (764 billion pound) deficit reduction plan.
That sparked fears over growth prospects for the world's largest economy and, in turn, the global economy.
Those fears were heightened when Chinese Vice Premier Wang Qishan said overnight a long-term global recession was certain and China must focus on domestic problems.
That will come as a blow to European leaders hoping China would use its financial clout to help the euro zone combat its debt crisis.
Any hope that China could eventually be persuaded to investing in the European Financial Stability Fund now looks distant, said Jimmy Yates, head of equities at CMC Markets.
With so many countries looking after their own interests it is difficult to see where a solution is going to come from and that will only unsettle investors further.
France was dealt a blow when rating agency Moody's said a rise in rates on government debt and weaker growth prospects could hit its credit rating.
In a global equity strategy note, Credit Suisse said it forecast zero earnings per share (EPS) growth in the Unites States in 2012 and a 2 percent fall in Europe.
The broker said European sectors most vulnerable to earnings revisions were autos, beverages, construction and media, with chemicals, energy, software and utilities being the least vulnerable.
Royal Bank of Scotland shed 3.4 percent, after Espirito Santo cut its rating on the part state-owned lender to neutral from buy and slashed its target price to 22 pence from 51 pence.
The broker said while RBS was regarded as one of the best recovery plays in the sector due to its depressed share price, it found little evidence of a recovery in earnings forecasts.
Worries remained over the leadership at Lloyds after chief executive Antonio Horta-Osorio's return from sick leave was delayed, with non-executive director David Roberts named as a back-up interim chief executive.
The banking and mining sectors have lost more a quarter of their value in 2011, as investors have grown more worried over the global economic recovery.
Nomura, which remains upbeat longer term on global equities on valuation grounds, scaled down its overweight position in Europe as the continuing uncertainty around the resolution of the crisis could lead to more volatility.
British life insurer Phoenix rose 7.3 percent to the top the FTSE mid-cap leaderboard after saying it was considering further takeover offers, including one from buyout firm CVC.
European publishing group Mecom gained 18.5 percent after saying it was in talks to sell Edda Media, its Norwegian business, after receiving a number of approaches.