Britain's FTSE 100 ended below 4,000 points for the first time since December 1996, with Stg£55 billion wiped off blue chips, triggering talk of panic selling and capitulation.
A fresh dive on Wall Street - savaged again by deep mistrust of US corporate integrity and jitters as the second-quarter earnings season kicks off - sparked off a 5.4 per cent drop in UK shares, the biggest one-day percentage closing fall since a 5.7 per cent drop on September 11th last year.
The blue-chip index closed down 229.6 points at 3,994.5, up from a 5-1/2 year intraday low of 3,974.6.
Analysts said today's sell-off showed the tell-tale signs of panic often seen just before prices reach a bottom.
"There's been fairly wholesale selling of FTSE 100 stocks irrespective of newsflow, as such, that is a prerequisite for capitulation, although it's come earlier than we expected," said Mr Steve Russell, UK equity strategist at HSBC Securities.
"Confidence is shot. People are losing the plot. People are selling stock to buy gilts (government bonds). It's panic and they want to get their money out." said one trader.
Fund managers Amvescap and Schroders topped the FTSE 100 losers' list, dropping 10.9 percent and 10.6 per cent. Banks knocked 54 points off the leading index, with Barclays off 7.4 percent and Lloyds TSB off seven percent.
Oils wiped 53 points off the benchmark index, with Shell sliding 8.1 percent after a former employee raised questions over $7.4 billion of deals in future U.S. power prices.
Volume was a heavy 2.6 billion shares.