The FTSE 100 plunged as trading opened at the London Stock Exchange, following the lead of equity markets in Asia and Wall Street in a third day of turmoil.
The FTSE 100 lost 3.5 per cent at the open, before recovering to a loss of just over 2.25 per cent at the time of writing. The index hit its lowest point since late 2016 in early trading.
Germany's benchmark Dax index has fallen by 2.3 per cent, while France's Cac 40 lost 2.5 per cent at the time of writing.
London's blue-chip stocks were spared the worst of Monday's price falls, with the index only losing 1.46 per cent, compared to the big four per cent fall seen on Wall Street's S&P 500 index.
Both the S&P 500 and the Dow Jones Industrial Average sustained their record points falls – although they were only the ninth worst real losses since March 2009, according to Chris Bailey, an investment consultant.
Hussein Sayed, chief market strategist at FXTM, said: "We have been anticipating a correction for a long time now, but when markets become over-confident, corrections also become steeper. It’s hard to tell how far markets may decline, but given that economic fundamentals remain strong, I think investors will start buying the dips sooner than later."
The turmoil on equity markets followed a period of historically low volatility which had investors nervously eyeing frothy valuations. The trigger came from fears over a faster pace of monetary tightening from central banks, after US jobs data showed a pick-up in wage growth.
The benchmark US 10-year bond yield spiked to heights of 2.85 per cent at the end of last week, its highest since the start of 2014, although it has since retreated to below 2.7 per cent.
David Baker, chief investment officer at investment manager Mazars, said: "The possibility of a correction brought about by high bond yields has been our key risk factor when considering the asset allocation of our clients’ portfolios."
The reaction of new Fed chair Jerome Powell will be a key signal over the medium term, Baker added: "Normally, a simple statement from the Fed chair indicating that accommodative policies will be a priority of the new leadership of the world’s de facto central bank would calm markets."