The FTSE 100 saw a 2.18 per cent drop today as markets in the US dropped on renewed loss of confidence in financials.
The FTSE 100 closed down 118.10 points to 5,331.80.
Meanwhile in the US the Dow Jones was down 1.09 per cent at 16:45BST following yesterday's falls.
In London it was the property and financial sectors that took the greatest hit.
Builders merchant Wolseley was down 8.86 per cent heralding the fate of builders outside the FTSE 100 with property developer Hammerson dropped 6.93 per cent.
Fellow REIT British Land dropped 6.81 per cent.
HBOS and Royal Bank of Scotland were down 6.76 per cent and 6.67 per cent respectively.
Meanwhile, commodity and energy stocks saw some gains.
BG Group rose 2.09 per cent despite Origin Energy rebuffing its £7 billion advances while Scottish & Southern Energy was up 1.32 per cent, John Wood Group gained 1.31 per cent and Xstrata climbed 1.1 per cent.
Medical supplies manufacturer Smith & Nephew rose 1.70 per cent.
Anthony Grech, market strategist at IG Index, said: "Reports from America that the US government will bail out Fannie Mae and Freddie Mac caused the Dow to drop one per cent overnight, leading the FTSE to open down and continue to spiral lower throughout the day.
"HBOS lost six per cent and Barclays, RBOS and Lloyds TSB all suffered losses, helping keep the FTSE below 5400 and back to the levels of two weeks ago."
He added the psychological 5500 mark has proved too much for the FTSE to breach over recent weeks, with those predicting more downside past 5,300 yet to be proven wrong.
"The consistently gloomy outlook for the global financial markets, and fears the crisis could get worse in coming months, means investors are understandably wary about where the lightning will strike next," he said.
"The banking sector, ever a weight on the FTSE 100, seems the obvious target, with recent comments from former IMF chief Kenneth Rogoff that a big US bank will fall in the tail end of the year, putting yet more pressure on the beleaguered sector on both sides of the Atlantic."