Leading shares are falling sharply on a toxic cocktail of bad news.
For a start the eurozone crisis is once more in the spotlight, following the resignation of two ministers in Portugal leading to fears of a collapse of the country's government. Any new elections would cast doubts over the country's ability to maintain its austerity programme, key to its bailout agreement.
Meanwhile the growing tension in Egypt as the army's deadline for a resolution to the current crisis approaches has sent oil prices above $100 a barrel.
On the economic front, Chinese services data has disappointed, adding to fears of a slowdown in one of the world's key economies. In the eurozone, the latest services surveys have mostly missed expectations.
Later come US jobs and services figures, ahead of the non-farm payroll report on Friday.
So the FTSE 100 is down 100.3 points or 1.59% to 6203.91, while Germany's Dax is down 2% and France's Cac is 1.7% lower. Portugal's PSI 20 has tumbled 6.7% while its bond yields have soared to 7.5%, a real danger signal. Ishaq Siddiqi, market strategist at ETX Capital, said:
The political uncertainty in Portugal has really spooked markets as the spectre of another bailout for the country increases on fears of a collapse of the government will result in the country not being able to meet its loan obligations with its international creditors. This could trigger a sovereign default and potential removal from the euro zone, with contagion spreading across to Greece, a country that is currently struggling to secure its next tranche of aid money.
Staying on political uncertainties, Nymex oil prices soared above $100 mark, its highest level since April 2012 on the current situation in Egypt. The country's government and army are set for a stand-off after both sides refused to back down over an ultimatum set by the army for President Morsi.
