The FTSE 100 Index continued to slide as US air strikes against Islamic militants in northern Iraq fuelled jitters on European markets.
American fighter planes dropped 500-pound laser-guided bombs on Islamic State artillery, only hours after Barack Obama authorised air strikes to avert "a potential act of genocide".
Traders were also rocked by geopolitical uncertainty in Israel and the Ukraine.
The flight from risk towards safer haven assets such as gold meant the FTSE 100 Index was down by around one per cent at one stage, having fallen sharply in recent days to a level last seen in April. It later steadied to stand half a per cent lower at 6567.4, a decline of 30 points.
There was also pressure on the pound after figures showed the UK's trade deficit in goods widened slightly in June to £9.4 billion.
A fall in exports due to the strength of the pound was blamed for the latest disappointing figure.
Sterling has been at a six year high versus the US dollar in recent weeks but fell back to 1.68. It was also down against the euro at 1.25.
Among the heavyweight fallers, Vodafone dropped 4.1p to 191.9p and BT Group eased 7.7p to 371.4p.
Instability in the Middle East and the impact that this may have on oil prices threatened to send airline stocks sharply lower, although British Airways owner International Airlines Group later recovered to stand 0.9p higher at 317.1p. Budget carrier easyJet was 11p cheaper at 1228p.
Royal Mail was one of the leading risers after it announced further efficiency savings by asking delivery staff to also collect mail from up to 50,000 post boxes during the course of their rounds. Shares, which have fallen to the lowest level since Royal Mail's controversial privatisation last autumn, were up three per cent or 12.5p to 426.5p.
Other risers included Royal Bank of Scotland, which jumped nearly three per cent or 8.2p to 345.6p, and Tesco with a gain of 3.2p to 247p.
Outside the top flight, shares in Bellway were down 3p at 1475p despite the housebuilder announcing a 21 per cent rise in sale completions in the year to July 31, while the average price of homes sold was up by 10 per cent to £213,000.
The company added there were few signs that the property market has slowed in the face of new mortgage rules, although recent data suggests the London market, where Bellway has operations, is beginning to cool.
The biggest risers on the FTSE 100 were Hargreaves Lansdown up 34p at 1084p, Fresnillo up 31.5p at 1012p, Royal Mail up 12.5p at 426.5p, Royal Bank of Scotland up 8.2p at 345.6p.
The biggest fallers on the FTSE 100 were Schroders down 61p at 2213p, Smiths Group down 32p at 1248p, Tullow Oil down 17.5p at 710p and BG Group down 27.5p at 1154.5p.