The FTSE 100 sunk further in early trading to 3,907.78 by 08:38 BST as investors lost confidence in financial stocks.
The optimism triggered by the G20 meeting last week appears to have evaporated as the US reporting season begins, sending the index back under 4,000.
Insurer Prudential led the decline this morning, with a 4.5 per cent fall, followed by a 4.34 per cent fall in Friends Provident.
Lloyds Banking Group also fell 3.98 per cent to 70p, while HSBC was trading 3.56 per cent lower.
Offsetting these falls were the defence, pharmaceutical and retail sectors.
Smith & Nephew rose 2.84 per cent, while DIY retailer Kingfisher was up by 2.19 per cent ahead of an anticipated Easter sales boost.
Tesco was also up, by 1.46 per cent, while defence firm Cobham maintained its rally, rising 1.39 per cent.
In the US, the first quarter reporting season began with Alcoa, and shares tumbled on fears companies fared worse than expected in the first few months of 2009.
At market close yesterday, the Dow Jones was off 2.3 per cent, while the S&P 500 fell 2.4 per cent.
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