The FTSE 100 dropped by 1.95 per cent in early trades after the Federal Reserve said it could ease its bond-buying programme and fears of a Chinese hard landing resurfaced.
As of 09:59 GMT, the blue-chip index was down 133.1 points to 6,707.17. This follows the S&P 500 closing 13.81 points down at 1,655.35 and the Nikkei 225 shedding 7.3 per cent to hit 14,483.98, while European stockmarkets also witnessed declines in early trading.
The falls came after Fed chairman Ben Bernanke said the US central bank may start to ease the pace of its $85bn-a-month bond-buying scheme “in the next few meetings” if the country’s labour market continues to strengthen.
Meanwhile, the ‘flash’ HSBC China Purchasing Managers’ Index showed manufacturing activity in the world’s second largest economy contracted for first time in seven months during May, adding to concerns that the Chinese economy is at risk of another slowdown.
ARM Holdings was the largest faller on the FTSE 100 by 09:59 GMT, followed by GKN, Anglo American, Vedanta and Evraz.
The FTSE fell despite figures from the Office for National Statistics showing the economy grew by 0.3 per cent in the first quarter of 2013. The data, which the second estimate of growth, confirm the country was able to avoid an unprecedented triple-dip recession.