London's leading share index opened more than 5% down after mounting recession fears led to fresh weakness on global markets overnight.
The FTSE 100 Index fell 211.6 points to 3868 - its lowest point for more than five years. On Wednesday the blue chip share index fell more than 7%.
British Airways, seen as a big loser in a worldwide recession, was one of the biggest fallers, down nearly 10%.
Thursday's turmoil follows massive falls in Asian markets overnight, including an 11.4% fall for Japan's main Nikkei index and a 7.6% slump for Hong Kong's Hang Seng.
On Wednesday night New York's Dow Jones Industrial Average also closed down nearly 8% as jittery investors dumped shares after sobering reports on the US economy.
The stock market slumps come despite the huge banking sector rescue packages announced around the world this week by governments desperate to end the global financial crisis.
Hopes that the US stock market may bounce back later on Thursday helped take the London market off the opening lows.
But businesses exposed to the ailing housing market were seeing some heavy losses after FTSE 250 building materials firm Travis Perkins warned profits would be towards the bottom end of City hopes.
The company's shares plunged nearly 18%, helping to drag down B&Q owner Kingfisher 11% lower.
Wolseley, which operates the Build Center and Plumb Center chains, also fell more than 12%.
