Forex

The UK's FTSE 100 index lost more than 2% in early trade, dropping below 5,370 points and heading towards investors' definition of a "bear market".

A bear market is often defined as a 20% fall from the stock index's recent peak and is the opposite to a bull market.

Analysts have warned that equities are set to be volatile in coming months.

The Paris-based Cac 40 index also traded around 2% lower as did Germany's Dax index.

European markets tracked earlier slides on Wall Street and in Asia on fears about the health of the fragile US economy.

The G8 group of industrialised nations, meeting in Japan, voiced strong concern about surging food and oil prices, which they said posed risks for a global economy strained by the credit crunch.

In the UK banks were among the biggest fallers, with beleaguered lender Bradford & Bingley plunging 19% on continued concerns about its fund-raising plans.

US markets fell on Monday on fears that two of the country's biggest mortgage providers would have to raise even more money to strengthen their balance sheets.