Britain's FTSE 100 .FTSE fell below the 5,000 level for the first time in a month on Tuesday, while European stocks also extended losses, weighed by weakness in banks and miners.
By 1027 GMT the index was down 2 percent at 5,001.86, havin gg fallen as low as 4,992.73.
If the FTSE were to spend a couple of days or so below the 5000 level, investors might become resigned to the fact that maybe share prices have got ahead of economic reality and it is time, at the very least, for a short pause, said David Jones, chief market strategist IG Index.
Britain's blue-chip index has been hit by sliding financial shares, hit as a shake-up involving the UK's two biggest lenders, Royal Bank of Scotland (RBS.L) and Lloyds Banking Group (LLOY.L) hurt sentiment.
Royal Bank of Scotland (RBS.L) fell 2.3 percent while Barclays (BARC.L), HSBC (HSBA.L) and Standard Chartered (STAN.L) lost 2.4- 3.6 percent but Lloyds Banking Group (LLOY.L) added 2 percent.
Rio Tinto (RIO.L), Xstrata (XTA.L), Lonmin (LMI.L) fell between 3.3 and 5.6, weighed by lower metal prices.