UK stocks suffered another steep decline on Monday, wiping nearly 31 billion pounds off the FTSE 100's value and taking the index to its lowest close since mid-December, with resource stocks led by steelmaker Corus and miner Xstrata feeling the brunt of the selling pressure.
Global equity markets have tumbled over recent days amid persistent concerns over interest rates and inflation in the world's biggest economy, the United States.
The FTSE 100 ended down 124.7 points, or 2.2 percent, at 5,532.7 - erasing 30.8 billion pounds from the worth of UK blue chip stocks and taking the index to its lowest close since December 16. Turnover was a heavy 3.5 billion shares, and the drop marked a finish below the FTSE's 200-day moving average, a bearish technical sign.
Analysts were reluctant to predict an imminent recovery, even though the FTSE now trades nearly 10 percent below its five-year high in April after having fallen for eight out of the past nine sessions.
"The difficult factor is the psychology or the sentiment. We've shifted, however temporarily or otherwise, from an environment where investors were fairly complacent and fairly ready to embrace risk to one where they're much more aware of risk and aware for the potential for volatility," said Alex Scott, an analyst at private client money manager Seven Investment Management.
The message from Morgan Stanley strategists was also cautious, warning investors that it was not yet time to buy back into the market.
"We think it is too early to buy," they wrote in a research note. "The second part of this correction may well take up to seven months, we think, and will be with lots of mood swings."
Sentiment was similarly downbeat on Wall Street, where turbulence tied to inflation worries sent the Dow Jones index down a further 0.7 percent by the London close.
Mining and metals stocks continued to feel the full force of the retreat, with steelmaker Corus ending down 9.3 percent. Xstrata and Kazakhmys both falling over 8 percent on the day.
Pressure on the sector, which experienced some of the strongest gains during the market's upswing, has been intense as prices in metals markets slide. Gold fell 3.5 percent to its lowest in nearly four weeks, and silver slipped to a one-month low before rebounding.
Energy companies were also knocked as oil prices dropped toward $68 and hit a six-week low. Oil major BP was 2.2 percent lower, and oil explorer Cairn Energy lost 6.3 percent.
"Commodity prices are lower," said one trader. "You would think that would ease inflation fears, but the market is just following its tail at the moment."
Alliance & Leicester was one of only eight blue chip stocks to end higher, up 2.5 percent after French peer Credit Agricole said it was assessing a possible bid for the mortgage lender but added it had yet to make a proposal. A&L for months has been depicted by analysts as the most likely take-over target among UK banks.
Mid-cap emergency services firm Homeserve also outperformed with a 3.5 percent rise as it said fears of frozen pipes and blocked drains over the winter helped boost its profits.