More than £23 billion was wiped off the FTSE 100 on Monday as the index was dragged down by financial stocks and renewed fears of a Trump presidency ahead of the first US presidential debate.
The UK’s premier market fell 91.4 points, or 1.3%, to 6818 points, with only a handful of stocks in positive territory.
Sterling failed to find direction, rising 0.1% to 1.298 against the US dollar, but falling 0.3% to 1.152 against the euro.
Investors shied away from global equities ahead of the first scheduled US presidential debate between Democratic candidate Hillary Clinton and Republican candidate Donald Trump before the November 8 election.
Connor Campbell, a financial analyst at SpreadEx, said: “The first televised debate marks the point where Trump vs Clinton will be even more unavoidable than it already is, and therefore has reminded the market that the Brexit, US interest rates and China’s economic slowdown aren’t the only macro-issues out there to worry about.
“In other words, the markets have been reminded this morning that a Donald Trump presidency is still more than possible, sparking a sharp decline roughly on par with the gradual gains managed last week.”
The debate is scheduled for 9pm US Eastern Time (2am BST).
It follows a report by German magazine Focus suggesting the government has ruled out state aid for the bank.
It is believed that Deutsche’s capital buffers could be hit by a 14 billion US dollar (£10.7 billion) fine proposed by the US Department of Justice (DoJ) linked to the sale of mortgage-backed securities in the run-up to the financial crisis.
Investor concern over the German lender sparked a sell-off of European banking stocks, with Royal Bank of Scotland (RBS) down 2.8%, or 5.1p, to 177.5p, and Barclays down 1.9%, or 3.3p, to 168.1p.
In oil markets, Brent crude prices jumped 2.8% to 47.27 US dollars (£36.43) per barrel ahead of a three-day gathering of oil producers in Algiers.
Investors are hoping Opec members agree to cap or cut oil supply in a bid to support floundering crude prices.
On the UK’s top-tier index, Standard Life shares dropped 10.9p to 342.3p amid news its investment arm would lift a trading suspension on its UK property fund, saying Britain’s commercial real estate market has “stabilised” in the wake of the EU referendum.
UK supermarket stocks also slumped after the British arm of Aldi said it will invest £300 million in store revamps following another year of record sales, which grew by £7.7 billion in 2015.
It hurt shares of UK rivals, with Sainsbury down 5.2p to 248.7, Morrison down 2p to 216.4p and Tesco down 5.1p to 176.5p.
The best-performing stocks on the FTSE 100 were Burberry up 8p to 1409p, London Stock Exchange Group up 15p to 2844p, Micro Focus International up 10p to 2134p, and National Grid up 4.5p to 1079p.
The biggest losers on the FTSE 100 were Intercontinental Hotels Group down 187p to 3098p, Pearson down 32p to 726p, Barratt Developments down 20.3p to 476.9p, and Taylor Wimpey down 6.3p to 149.2p.
