Renewed fears over the eurozone sparked a major sell off on stock markets amid concerns over Spain and strikes on the streets of Greece.
Spain's central bank said the country's gross domestic product continued to contract at a significant rate in the third quarter, while there is also uncertainty over whether the country will accept the terms of a bailout.
Eurozone worries were compounded by strikes in Greece over austerity cutbacks.
London's FTSE 100 Index close 1.6% or 91.6 points down at 5768.1, while France's Cac 40 slumped 2.8% and the Dax in Germany was 2% lower.
Wall Street followed European indices into the red, with the Dow Jones Industrial Average down around 20 points as the Footsie closed.
The Dow had fallen more than 100 points in the previous session after investors were spooked by a member of the US Federal Reserve casting doubt on the effectiveness of its stimulus efforts.
The pound rose to nearly €1.26 as the European woes hit the single currency. Sterling fell to $1.61, with the greenback seen as a safer currency.
In London, the blue-chip fallers board was dominated by financial stocks, with Royal Bank of Scotland off 6% or 14.9p to 255.1p, Barclays down 9.6p at 213.7p and Lloyds Banking Group 1.7p lower at 38.9p.
In the insurance sector, More Than parent RSA dropped 5% or 5.6p to 113.1p amid fears over the cost of flood claims across the UK after the most intense September storm for decades.
Aviva was also lower, down 7.8p to 321.3p, and Legal & General dropped 3.2p to 132.7p.
There were only two blue-chip stocks in positive territory, with quality control services group Intertek up 8p to 2720p and British American Tobacco 2p ahead at 3205p.
Outside the top flight, the recent strong run for shares in Domino's Pizza came to an end after third quarter sales figures disappointed investors. Shares slid 22.5p to 540.5p.
Waste disposal group Shanks was also under pressure after it warned its profits will be below City expectations. Shares closed 12% or 11.25p down at 79p.
Topps Tiles was 4% lower despite a robust end to its financial year.
Its sales are expected to increase by 3.7% on a like-for-like basis in the quarter to Saturday, resulting in a decline of 1% for the full 52 weeks.
And while it expects to meet profit forecasts for the year, shares were 2.25p lower at 47p after Panmure Gordon removed its buy rating on the stock.
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