Eurozone gloom and a drive by the US to tighten the rules that allow foreign takeovers as a way of lowering tax bills rattled investors with Scottish online dating firm Cupid was a big faller in the AIM index.

The FTSE 100 Index slumped by 97.6 points to 6,676.1 in a session when other European markets were also lower by 1.5 per cent or more. The Ukraine crisis and sanctions between the West and Russia have added to fears that the eurozone may slow further in the fourth quarter.

The pound fell against the US dollar, at 1.64, as traders continued to price in the decisive margin of last week's Scottish referendum vote. Sterling also fell against the euro, at 1.27.

Cupid saw its share plunge after warning a previous prediction of being profitable as it entered in 2015 may slip back and admitting the board was reviewing strategic options, which include cost reductions and asset disposals. Revenue at the Edinburgh company was at £7.2m for the six months to June 30 with a pre-tax loss of £3m. Chief executive Phil Gripton remains hopeful trading will improve in the second half of the year. The company pointed out a new mobile matchmaking app, called Tangle, is to launch next month and highlighted its £11.2m of cash, but shares closed down 2.75p, or 8.5 per cent, at 29.75p.

Belhaven owner Greene King confirmed it has approached Spirit Pub Company about a takeover. Although Spirit said an initial 100 pence per share proposal, worth about £660m, had been rejected the market expectation is Punch will go back in with another approach. Shares in Spirit soared 13.25p, or 17.5 per cent, to 88.75p while Greene King rose 0.06 per cent, or 0.5p to 794p.

Drugs companies were at the forefront of London's sell-off after the US began a crackdown on firms that use foreign takeovers in a bid to lower tax bills.

The tax inversion policy had been highlighted by Pfizer earlier this year when it bid for AstraZeneca before being forced to drop its interest. With the US Treasury announcing steps on Monday night to tackle the practice, shares in potential US bid targets were sharply lower. Big fallers included Astra, which was down more than three per cent or 163.5p to 4,414p, while Smith & Nephew dropped 30p to 1,038p.

In a grim session, shares in Tate & Lyle slumped almost 17 per cent or 122.5p to 610p after it issued a profits warning due to the performance of its speciality food ingredients business. And retailer Mothercare fell 4.25p to 244p after it asked shareholders for £100 million to help pay for its UK store programme.

The biggest risers in the FTSE 100 Index were Rio Tinto up 49.5p at 3,108p, Randgold Resources up 47p at 4,312p, Glencore up 2.35p at 344.25p and BHP Billiton up 11p at 1,741.5p.

Biggest fallers were J Sainsbury down 15p at 263.8p, Tesco down 8.5p at 194.5p, Schroders down 96p at 2,363p and Rolls-Royce down 37.5p at 965.5p.