A 200 point opening slide on Wall Street has dragged the FTSE 100 index under the 4,000 level in mid-afternoon trading.
Traders in London were already taking some profits after the market's recent rally and the opening fall in the Dow Jones Industrial Average has exacerbated that trend.
An hour after Wall Street started trading the FTSE 100 index is down 119.52 at 3937.28 points. The index has experienced a near 500 point rally since the start of March.
The large writedowns in Bank of America's otherwise forecast-busting first quarter results have again thrown the spotlight on the toxic assets lurking within the banking sector. The bank saw provisions for credit losses balloon to $13.4bn (£9.2bn) in the three months to end June from $8.5bn (£5.85bn) in the fourth quarter of last year.
This side of the Atlantic, Barclays has seen its recent rally splutter with the shares down 24p at 203p - a drop of 10% - while Lloyds Banking Group loses 5.2p to 99.3p.
Mining stocks are also hard hit with Kazakhmys down 54.2p at 460.25p and Vedanta Resources down 85.5p at 878.5p.
The afternoon session's biggest loser, however, is Thomas Cook, down 34.7p at 250.5p, as hopes that its largest shareholder Arcandor might launch a fullscale takeover fade as the German business admits it needs more funds.
