Investors headed for the exit as concerns grew of a repeat of last June's emerging markets rout following Thursday's plunge in the value of the Argentinian peso as the country's central bank gave up on its battle to prop up the currency through intervention in financial markets.
The FTSE-100 Index suffered its worst week of the year so far as investors made a flight to safety, falling 109.5 points to 6663.7 yesterday - a drop of 1.6%.
London's top tier has shed 2.4% this week after falls in the previous sessions after Wednesday's bigger-than-expected fall in UK unemployment reinforced speculation of an interest rate hike.
There were similar falls across European indices yesterday, with France's Cac 40 and the Dax in Germany down 2.8% and 2.5% respectively.
Nervous investors fretted that the emerging market woes would spread, with political turbulence also seeing the Turkish lira tumble to a record low against the US dollar and the South African rand dropping sharply.
After being buoyed in recent sessions by speculation over interest rate rises, the pound fell a cent to 1.65 US dollars and by a similar level to 1.21 euros.
Among stocks, those with exposure to emerging markets were hardest hit in the sell-off, with Aberdeen Asset Management the biggest casualty after a decline of 6% or 24.1p to 397.3p.
Other stocks on the back foot were International Airlines Group as the British Airways and Iberia owner is heavily focused on Latin America for growth. Shares fell 21.1p to 406.3p, while global brewing giant SABMiller fell 89p to 2889p and Asian-focused insurer Prudential sunk 48p to 1262p.
Lloyds Banking Group fell 1.7p, or 2%, to 81.4p, after Investec Securities removed its buy rating on the stock, citing a potential further hit from payment protection insurance repayments.
Royal Mail shares were 15.5p lower at 572.5p after a trading update in which it highlighted an 8% rise in parcels revenues for the first nine months of the year.
The company, whose shares have shot up from 330p since its flotation in October, said it was trading in line with expectations, helped by a busy December for parcels and Christmas cards.
There was no festive bounce for train set firm Hornby as it warned it will make a loss this year due to supply chain issues in China. Shares in the Scalextric maker fell by 4%, or 3p to 77.5p.
The biggest FTSE-100 risers were RSA Insurance up 2p to 101.7p, Fresnillo ahead 12p at 792p, Randgold Resources 45p stronger at 4233p and Sainsbury's 3.3p higher at 362.1p. The biggest FTSE-100 fallers were Aberdeen Asset Management down 24.1p at 397.3p, International Airlines Group off 21.1p at 406.3p, Experian down 52p to 1072p and Mondi 43p weaker at 936p.