London's leading shares index saw its biggest fall in nearly three years as panic over the state of the global economy took hold.
The FTSE 100 Index closed 4.7% or 246.8 points lower at 5041.6 - wiping £64 billion from the value of Britain's biggest companies.
The slump - the biggest points fall since November 2008 - came after America's central bank delivered a gloomy view of the economy and failed to inspire traders with its latest emergency measures, which included a process dubbed Operation Twist.
The US Federal Reserve's warning that there are "significant" risks to the world's biggest economy was joined by disappointing manufacturing figures from Asian powerhouse China and the eurozone.
Meanwhile, Britain joined forces with five other G20 countries to call for decisive and co-ordinated action from the world's leading nations to help the global economy recover from recession.
Ben Critchley, sales trader at IG Index, said on Thursday: "Last night's gloomy outlook from the Fed saw market sentiment take a battering right from the open, while disappointing figures from China have done little to lighten the mood."
Operation Twist, designed to keep US interest rates lower for longer, disappointed markets, which had surged in recent days on hopes that the Fed might embark on a third package of quantitative easing.
The Dax in Germany dropped 5% while France's CAC-40 fell 5.3% as a similarly shocking performance unfolded on Wall Street, where the Dow Jones Industrial Average was 3.6% lower.
Oil prices tumbled on global growth fears, with Brent crude in London dropping nearly 3% to 105.71 US dollars a barrel and light crude on the New York Mercantile Exchange off 5.4% to 81.22 US dollars a barrel.
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The grim outlook from the Fed - which pointed to weakness in the US labour and housing market - was the latest shock to already volatile global markets, most recently shaken by financial uncertainty in Greece, which is verging on a debt default.
