Leading shares have been dragged lower in early trading by a downgrade to mobile phone giant Vodafone, poor results from aerospace company BAE Systems and the latest gloomy US economic data.
Vodafone fell 5.3 per cent to 93-1/4 pence after UBS Warburg, one of its house brokers, cut its rating on the company to "hold" from "strong buy" and cut its target to 100 pence from 140p.
The negative mood spilled over to rival mmO2 which dropped 5.8 per cent, helping the telecoms sector take 18 points off the FTSE's value.
The FTSE 100 was down 67.8 points, or 1.6 per cent, at 4,142.9, after sagging as low as 4,133.8.
BAE was the worst FTSE performer with a 9 per cent tumble after it posted a 25.5 per cent drop in first-half underlying pre-tax profits, below market expectations, hit by the civil aerospace downturn.
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Dealers said confidence was knocked by the Federal Reserve's Beige Book of anecdotal evidence on the US economy showing growth had slowed in recent weeks, indicating the world's largest economy is struggling to recover.
"It's uncertain at this point in time whether the global economy is going to slip back into recession or revive, but if there is a revival it's going to be fairly anaemic," said Mr Jeremy Batstone, head of research at Natwest Stockbrokers.