Corncern over Iran's nuclear programme and a 9% drop in Chinese stocks combined with jitters over US economic prospects to hammer share prices in London and other financial centres yesterday.

Growing concern over Iran's nuclear programme, and a 9% drop in Chinese stocks combined with jitters over prospects for the US economic outlook to hammer share prices in London and other financial centres yesterday.

UK shares saw £36.2bn wiped off their value.

The global rout raised fears in trading rooms on both sides of the Atlantic that US investors will dump equities after a four-year bull market on Wall Street.

"This is what I call the Shanghaishake-up,that's what's happening," said Phil Flynn, a US stocks analyst.

In the City, the FTSE-100 ended a nerve-jangling session 148.6 points weaker at 6286.1 - a loss of 2.3%.

The stock market contagion spread from Asia and Europe to Wall Street where the Dow Jones industrial average fell sharply from the opening bell.

TheDow closed 416.02 points down at 12,216.24, a loss of 3.29%.

The Standard & Poor's 500 index fell for a fifth day, its longest losing streak since March 2004. Commodity producers, consumer and technology companies that rely on demand from China topped the losers' board.

Companies with exposure to Asian markets, such as miners BHP Billiton and Rio Tinto, as well as banking group Standard Chartered led the declines on the London Stock Exchange.

City traders said Iran's stand-off with the major powers, which yesterday saw Tehran again face down international demands to suspend uranium enrichment,has soured the recently buoyant mood on world markets. This has increased the risk on highly-leveraged investments.

An economic report showing that new orders for US-made durable goods fell by a much sharper-than-expected 7.8% in January and a warning from former Federal Reserve chairman Alan Greenspan that the American economy may be headed for a recession also took a toll on trading.

"The durable goods release likely brought the bears on the US economy out of hibernation," said analyst Patrick Franke at Commerzbank. "Although durable orders are a very volatile series, the data point to an ongoing weakness in investment demand."

The US market is important for many Scottish and other UK exporters.

Asian investors were rattled by fears that the Chinese government may raise interest rates to rein in the booming economy and by comments made by Chinese Premier Wen Jiabao who said the country's communist leaders have no plans to allow democracy in the near future.

Democracy will emerge once a "mature socialist system" develops but that might not happen for up to 100 years, Wen wrote in an article in the People's Daily, the main Communist Party newspaper.

Earlier in China, investors unloaded stocks after recent strong gains. This sent the Shanghai Composite Index tumbling 8.8% to close at 2771.79. It was the index's biggest single-day drop in 10 years. It fell 9.4% on February 18, 1997, just after the death of Communist Party elder Deng Xiaoping.

The Shanghai index had gained 1.4% on Monday to 3040.60, extending a spate of record high closes. The Shenzhen Composite Index on China's smaller exchange sank 8.54% to 709.81.

In Hong Kong, the benchmark Hang Seng Index tumbled 1.8%, while Singapore's Straits Times index sank 2.3%. Markets in Japan and Taiwan, however,registeredonly modest declines.

Chinese share prices doubled last year as investors piled into the market following the completion of shareholding reforms that helped to reduce worries over a potential flood of shares entering the market.

However, the markets have become increasingly volatile.

Market heavyweights plunged yesterday on heavy selling by institutional investors,which in turn spooked retail investors.

"The most important reason for the decline was pressure for profit-taking,"saidPeng Yunliang, a senior analyst at Shanghai Securities.

Large-cap Baoshan Iron & Steel shed 10%, CITIC Securities fell 9.7% and China Life Insurance declined 9%.

Bank of China, in which Royal Bank of Scotland has a 4.26% stake, lost much less than other big stocks, falling about 1% to HK$3.98.

China still limits foreigners' purchases of the yuan-denominated stocks that make up the biggest share of the markets, though that is gradually changing.