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Leading shares were struggling to hold above the 5000 level today, as investors headed for the exits.
Bank shares and miners bore the brunt of the losses as Lloyds Banking Group paved the way for a record-breaking £13 billion rights issue and the stronger dollar took some of the shine off commodity prices.
The FTSE 100 gave back all of yesterday's gains, and then some, as it slumped 96.88 points to 5007.62.
It was even worse among second-liners, where an absence of liquidity tended to exaggerate the losses.
The FTSE 250 index tumbled 171.96, or 1.93%, to 8745.93.
Citigroup points out that despite some reassuring results, the FTSE 250 was down 2.8% last month and the FTSE Small Cap fell 3.3%. The FTSE 250 also underperformed its senior listing, the FTSE 100, which slipped 1.7% over the month.
However, most shares traded above their worst levels following news of Berkshire Hathaway's $34 billion (£20.8 billion) bid for railway freight operator Burlington Northern, which was expected to provide Wall Street with a boost this afternoon.
Events in the banking sector held the early attention. City investors woke up to news of further big losses at UBS.
The third-quarter net loss of Swfr 564 million (£336 million) came in much higher than expected and was the fourth-consecutive quarterly loss posted by the Swiss bank.
Meanwhile, there was little joy for shareholders of Royal Bank of Scotland when the share price sank a further 3.7p to 34.9p.
They will now see the taxpayer's stake in the stricken bank grow from 70% to 84% in return for joining the Government's asset protection scheme.
Lloyds Banking Group lost an early lead to trade 1.6p down at 83.4p, having briefly touched 90.3p, after confirming plans to raise a further £21 billion from the City to escape the scheme.
A total of £13.5 billion will be raised by way of a heavily discounted rights issue, which may be priced as low as 15p a share.
The bank will be forced to divest itself of 600 branches as well as the TSB brand name and its online business Intelligent Finance within four years to satisfy EU rules.
The only bit of good news for Lloyds came from credit rating agency Fitch, which reaffirmed its rating at AA- while upgrading its individual rating to C.
Elsewhere in the banking sector, Barclays was on the slide again, losing 11p at 318¾p.
That compares with the 360p a share that the Qatari Sovereign Wealth fund sold a £1.3 billion stake at last month.
HSBC dropped 23p to 667p while Standard Chartered lost 761p to 1461½p.
Mining shares came off the boil after yesterday's speculation-fuelled gains.
A stronger dollar took the shine of raw materials prices. Metals, such as copper and gold, are priced in dollars and that means when the currency rises, consumers get less for their money.
Xstrata tumbled 40p to 882p, while Eurasian Natural Resources fell 37p to 842p and platinum producer Lonmin lost 65p at 1470p.
Copper miner Antofagasta was left nursing a loss of 10½p at 783p after posting third-quarter production numbers in line with expectations.
This showed a rise of 3% quarter-on-quarter, largely due to increased production from El Tesoro, which offset the impact of lower throughput at Los Pelambres.
Investec is continuing to recommend the shares as a buy with a target price of 923p.
Even Mexican-based Fresnillo fell 29p to 739½p despite Numis starting coverage of the shares with a buy rating and 915p target.
Life assurer Old Mutual was one of the biggest blue-chip casualties, falling 4.9p at 104.6p. Keefe Bruyette Woods has jacked up its target from 55p to 85p but continues to rate the shares at underperform.
Electricity providers spent a nervous session trading within a narrow range. The French utility EDF is threatening to take the energy regulator Ofgem to the Competition Commission over its stance on the current price review, which it says is too harsh.
Brokers warn share prices, such as National Grid, 1½p off at 603½p, and Scottish & Southern Energy, down 9p at 1074p, may come under selling pressure as it dawns on investors that regulation is harsher than first thought.
This may eventually give way to relief if the market takes the view that the operators can win. But the initial reaction is expected to see the shares fall.
