Shares fell in London trade on Wednesday, following sharp losses in Asia and on Wall Street on mounting concerns over a weakening global economic outlook, traders said.
The benchmark FTSE 100 index dropped 64.86 points or 1.13 percent to 5,653.53 at 8.31 am.
Traders switched their attention from the US debt deal to the weakening global economic outlook and fears of fresh sovereign debt contagion in the eurozone.
Despite President Barack Obama's signing off on the deal to raise the US debt ceiling and avoid a devastating default, equities suffered a heavy sell-off and investors put their cash in safe haven gold, which surged to a record high.
In overnight trade, concern was focused on Italy and Spain with spreads between yields on their sovereign bonds and those of Germany hitting record levels, dampening hopes that the eurozone debt crisis might soon be over.
The premium demanded for buying Spanish 10-year bonds over safe-bet German bonds surged to more than four percentage points -- 404 basis points -- the highest since the introduction of the euro in 1999.
Investors sold down Spanish and Italian bonds on concerns that their debt problems would only get worse as economic growth slows.
The "market mood is likely to remain cautious on the back of the fear of US double dip recession and debt contagion in Europe," said Credit Agricole in a note, according to Dow Jones Newswires.
Losses in London were spread widely across in market, with semiconductor specialist Arm Holdings sinking 6.05 percent to 535.50 pence, Cairn Energy dropping 4.48 percent to 336.90 pence and Intercontinental Hotels falling 4.36 percent to 1.097 pence.
Aggreko, supplier of temporary power facilities, was also hit by anxiety about the weak economic outlook, shedding 3.74 percent to 1,803 pence. Miner Kazakhmys lost 3.43 percent to 1,212 pence.
Shares in travel company Thomas Cook surged 5.92 percent to 64.40 pence following news that chief executive Manny Fontenla-Novoa has resigned with immediate effect. It also said underlying operating profit for the second quarter tumbled to £20.1 milllion from £25.8 million a year earlier.
Standard Chartered rose 1.54 percent to 1,578 pence after it announced that profit from its banking operations, mainly in Asia, African and the Middle East, soared 20 percent in the first half.
Marks and Spencer edged up 0.83 percent to 338.40 pence.
The Bank of England's monetary policy committee meets today but analysts expect it to keep interest rates unchanged at a record low of 0.50 percent.
"The run of weaker news on the economic recovery has made a near-term interest rate rise even less likely than before," said Vicky Redwood, senior analyst at Capital Economics research group.