A drop in banking and oil shares dragged the FTSE 100 index down 3.4 per cent as gloomy earnings news from several major US companies undermined sentiment.
The benchmark index was down 145.0 points at 4,152.3 by 11.45 a.m today, wiping out Thursday's rally and taking the index back towards Tuesday's six-year day's low of 3,860.
"There's no real optimism in any move up. Everyone still sees it as a rally in a bear market," one dealer said. "Below 4,000 a lot of people seemed to see it as a good buying opportunity, but the light and shutters have been pulled down pretty quickly," he said.
Banks, the main engine behind Thursday's rally, took 33 points off the value of the main index, with Barclays down 5.2 percent and HBOS four per cent lower.
Oils eroded 31 FTSE points, with BP sliding 5.4 percent and Shell down 2.8 percent.