The FTSE 100 slid into the red as sentiment across Europe was heavily dented by the European Commission’s decision to cut its growth projections for the eurozone.
Monday’s gains were wiped away after the group predicted an economic contraction of 8.7% in 2020, as it warned of a particularly heavy hit in Italy.
London’s top flight closed 96.04 points lower at 6,189.9p at the end of trading on Tuesday.
David Madden, market analyst at CMC Markets UK, said: “Stock markets were deep in the red as sentiment turned 180 degrees from yesterday’s very bullish move.
“Equities pushed lower in early trading and the mood had been bearish throughout the session.
“Monday’s bullish move was Chinese led and that optimism has fizzled out.”
Europe’s major markets were all down as a result, although the FTSE reported a greater slump than its two largest European counterparts.
The German Dax decreased by 0.86%, while the French Cac moved 0.66% lower.
Across the Atlantic, the Dow Jones also tumbled lower as the ballooning number of Covid-19 cases in the US continued to drive caution from traders.
Meanwhile, sterling made strong gains as currency traders were hopeful ahead of Wednesday’s Brexit talks.
Stock markets were deep in the red as sentiment turned 180 degrees from yesterday’s very bullish moveDavid Madden, CMC Markets UK
Connor Campbell, financial analyst at Spreadex, said: “News that Michel Barnier and David Frost will have dinner at No 10 on Tuesday evening, ahead of the start of informal Brexit talks between the UK and EU tomorrow, lifted the currency, providing a bit of hope in a situation that seems pretty damn dire for those wanting to avoid a no-deal future.”
The value of the pound rose 0.71% versus the US dollar at 1.258 and was up 0.77% against the euro at 1.113.
In company news, shares in Boohoo continued to tumble as concerns over allegations about poor working conditions at supplier factories knocked more than £1 billion off its shares over the past two trading days.
Shares in the company dropped 35.3p lower to 261.4p as Next and Asos suspended sales of Boohoo-owned products from their websites.
Elsewhere, Daily Mirror owner Reach sank after it announced plans to cut around 550 jobs on the back of a slump in sales and advertising revenues during the coronavirus lockdown.
The group – which also owns a raft of regional newspaper titles across the UK – said it is cutting about 12% of its workforce under an overhaul aimed at saving £35 million a year. Shares fell by 12.6p to 76.2p.
Premier Inn owner Whitbread also moved lower after it said sales plummeted in March, April and May, although it remained upbeat about future prospects.
The hospitality firm said sales were down 80% over the period after being hit by the coronavirus lockdown. It moved 135p lower to 2,305p at the close of play.
The price of oil gained marginally as deep production cuts that have been put in place by Opec weigh on trading.
The price of a barrel of Brent crude oil increased by 0.67% to 43.34 US dollars.
The biggest risers on the FTSE 100 were GVC Holdings, up 28.4p at 817.4p, Evraz, up 5.6p at 301.5p, Coca-Cola HBC, up 33p at 2,006p, and Antofagasta, up 16p at 976p.
The biggest fallers of the day were Whitbread, down 135p at 2,305p, Smurfit Kappa, down 110p at 2,522p, Informa, down 19.3p at 452.7p, and Land Securities, down 21.8p at 566p.