The FTSE 100 briefly entered so-called bear market territory on Wednesday – meaning it fell more than 20% off last year’s all-time high of 7100.
Collapsing oil prices and worries over China’s economy, which saw its slowest growth for 25 years in 2015, have seen markets endure a dire start to the new year.
The price of Brent Crude dipped below 27.50 US dollars a barrel on Wednesday, touching near 13-year lows, and despite a brief rally overnight it remained under pressure.
Oil prices have collapsed by more than 70% since their peak of around 115 US dollars a barrel in summer 2014, as large producers such as Saudi Arabia maintain production levels, putting US shale rivals under pressure.
In Asian trade, early signs of a rebound faded by the close, with Japan’s Nikkei Stock Average ending down 2.4%, while China’s benchmark Shanghai Composite Index lost 3.2% despite a large cash injection from the country’s central bank.
Andy McLevey, head of dealing at stockbroker Interactive Investor, said: “The volatility of late is set to continue as nervous investors tread with caution.”
Among stocks, London blue chip Pearson led gains after it announced plans to slash costs, including around 40,000 job losses, to shore up its bottom line after warning over profits.
The education giant, which last year sold the Financial Times newspaper business and its stake in the Economist magazine group, cheered investors with plans to turn around flagging results.
Royal Mail was another FTSE 100 riser, up 3% as it reported back on a solid performance over Christmas, when it handled 130 million parcel deliveries.
But banks and energy firms remained in the red, with SSE and British Gas owner Centrica off 4% and 1% respectively, following E.ON’s move to cut tariffs on Wednesday.
The London market has seen more than £160 billion wiped off the value of top-flight shares in the first three weeks of the year amid a gloomy outlook for global growth.
Bank of England governor Mark Carney said on Tuesday that policymakers were in no rush to raise interest rates amid a weakened world economy and slowing UK growth.
The International Monetary Fund (IMF) also slashed its growth forecasts for the next two years on Tuesday, citing easing growth in China and rising geopolitical tensions.
In its latest World Economic Outlook, the IMF predicted world growth of 3.4% this year followed by 3.6% in 2017.
This is a cut of 0.2% in each year from when the fund published its last forecasts in October.