The FTSE 100 has opened 145 points, or 2%, lower as global investors reacted to Donald Trump's shock US election win.
The initial fall wiped £37bn off the value of the UK's biggest listed companies in just a few minutes though the index quickly pared back some of the losses to stand about 100 points down.
It came after Japan's Nikkei slumped by 5% and in Hong Kong, the Hang Seng fell 2%.
The US dollar also sank while the Mexican peso plummeted by as much as 13% to a record low.
Investments seen as safe havens such as government bonds and gold, as well as the Japanese yen and Swiss franc, turned higher as the tide turned in Mr Trump's favour, against initial expectations.
Jasper Lawler, market analyst at CMC Markets UK, said: "Markets are freaking out.
"President Trump said his election would be bigger than Brexit - and as far as financial markets are concerned, that is already true.
"European stocks are projected to open between 4 and 5% lower, wiping off billions in market cap in one fell swoop of Trumpism.
"Since the US is the world's largest economy and the US dollar is the world's reserve currency, it still holds true that when the US sneezes, the rest of the world catches a cold."
In London, the futures market fell 3% ahead of the stock market opening at 8am. US futures were also down sharply ahead of Wall Street's opening bell later in the day.
Sterling was up by a cent against the US dollar overnight at $1.25 though it later slipped back to about $1.24.
Oil was down, with a barrel of Brent crude falling below $45, a three-month low.
In Tokyo, the Japanese government and central bank were preparing to meet for crisis talks.
Markets had been expecting a victory for Hillary Clinton and many investors fear a Trump White House would up-end the global political order.
Stocks have seen a rollercoaster ride over the last week with sharp falls as Mrs Clinton came under pressure over an FBI investigation followed by rallies when the ending of the probe had appeared to tip the scales in her favour.
Election day saw tentative gains as investors waited anxiously on the result but as voting projections swung in Mr Trump's favour trading turned volatile.
Investors fear the Republican's protectionist stance will lead into a trade confrontation with China while he is also expected to renegotiated the long-standing NAFTA free trade agreement with Mexico and Canada.
Plans for transatlantic and trans-Pacific trade deals now look dead, said Paul Ashworth, chief US economist at Capital Economics.
Meanwhile a series of unfunded tax cut plans would send Federal debt levels soaring, he added.
Kathleen Brooks, research director at City Index, said: "Markets are in all-out panic mode."
"A Republican Congress could deliver some of the more extreme policies that Trump has touted during his campaign, such as import tariffs and a ban on certain immigrant groups.
"This is a major concern for the markets, as it could completely change not just US politics, but also the global economic norm," Ms Brooks said.
Meanwhile, the prospect of a US interest rate rise in December looked likely to fade in the event of a sharp and prolonged stock market downturn, she added.
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