The FTSE 100 hit a two-and-a-half year low on Thursday, retreating from the Boxing Day rally seen on Wall Street.
London’s blue-chip index closed down 101.31 points, or 1.52%, to 6,584.68, its lowest level since July 2016, a month after the vote on Britain’s membership of the European Union.
Germany’s DAX fell 2.4% while France’s CAC declined 0.63%.
European markets had opened higher on Thursday tracking the record-breaking surge in Wall Street on Wednesday, which saw US benchmark stocks reach their highest level in nearly a decade. But the rally faded with European stocks moving into the red as the session went on over concerns about a slowing global economy.
Jon Redwood, chief global strategist at wealth manager Charles Stanley, said: “The large rally on December 26 was led by the technology stocks on Wall Street. This sector had sustained the bull market and had succumbed to selling only in recent months.
“There has been a correction with markets remembering that these digital companies too face regulatory and tax threats to their profits ahead.”
Retreating US stocks dragged oil prices lower with a barrel of Brent crude, the international benchmark, trading down 3.43% at 53.36 US dollars (£42.23).
Elsewhere, the pound was flat against the US dollar at 1.263 and was down 0.51% versus the euro to 1.106 at the London market close.
In corporate news, credit card giant Visa is to acquire London-listed Earthport in a £198 million deal.
The deal, for 30p per share, represents a 250% premium to Earthport’s six-month average stock price.
Earthport shares closed up 20.85p to 28.3p.
Norwegian energy firm DNO again urged shareholders in North Sea oil producer Faroe Petroleum to accept its hostile takeover bid for the company.
DNO has offered £608 million at 152p per share, a takeover bid which has been rebuffed, with Faroe describing it as “opportunistic” and claiming it undervalues the company.
Faroe Petroleum shares fell 2.8p to 149.2p.
Stanley Gibbons reported a narrow loss on lower costs after restructuring, but conceded the group still has a lot of work to do.
For the six months ended September 30, the stamp and coin specialist posted a pre-tax loss of £2.4 million compared with £2.9 million in the same period a year earlier as one-off costs fell to £118,000 from £474,000.
Stanley Gibbons shares were unchanged at 3.78p.
Manufacturing giant BAE Systems is to recruit almost 700 apprentices in 2019, up by almost a third on this year.
The new recruits will join the firm’s air, land and maritime businesses and embark on one of 25 training programmes.
BAE shares were up 3.5p to 455p.
The biggest risers on the FTSE 100 were Fresnillo up 32.2p to 867.2p, Sage Group up 20p to 587p, Randgold Resources up 190p to 6,660p, and Scottish Mortgage Investment Trust up 10.95p to 453.9p.
The biggest fallers on the FTSE 100 were Micro Focus International down 72p to 1,308.5p, SSE down 48p to 1,032.5p, BT Group down 9.9p to 233.5p, and Astrazeneca down to 241p to 5,720p.