The FTSE 100 has closed down 1% at 5980.4 points, as weak oil stocks and more job cuts in Wall Street knocked investors' confidence.
After a bright start, the London market slipped back amid concerns that record crude oil prices have nearly peaked, hitting oil stocks.
BP closed down 2p at 562p, while Cairn Energy closed down nearly 3% at £31.04p.
In the US, Merrill Lynch, the investment bank at the centre of the sub-prime mortgage crisis, said it would cut 4,000 jobs - one in 10 of its workforce.
BGC, an inter-dealer broker, summed up a day of two halves in the London market: "From 8am to 1.30pm, the FTSE 100 was bobbing along. Then came Merrill Lynch's numbers, which were marginally better than awful. All in all, it was deeply forgettable session."
Thomson Reuters was the top FTSE 100 faller on its debut in the London market.
Shares in the financial news and data group, formed by Thomson Corp's $16bn-plus takeover of Reuters last year, failed to excite a jittery market. It lost 266p, or about 15% to close at £15.62p.
