Shares have tumbled after US President Donald Trump restricted travel to the US from mainland Europe in a bid to slow the spread of the coronavirus.
London’s FTSE 100 index sank 6%, with similar declines seen in other European markets.
Earlier, stocks in Asia saw big falls, with Japan’s benchmark Nikkei 225 index closing 4.4% lower.
It followed steep losses in US shares on Wednesday, with the Dow Jones plunging by 5.8%.
In the UK, every single share in the FTSE 100 index was trading lower. Once again, travel companies saw some of the biggest falls, with airline group IAG down 11% and Tui falling 9%.
The travel sector’s problems could be compounded by the fact that the UK government is set to step up its response to coronavirus. This could include banning large gatherings, such as sports events or concerts.
Elsewhere in Europe, share indexes in Paris and Frankfurt were down by more than 6%.
“Donald Trump’s restrictions on travel from many parts of Europe to the US have spooked the market, particularly because his initial comments implied they would also block cargo, which he has since retracted,” said Russ Mould, investment director at AJ Bell.
“The travel ban will raise expectations that the US will enter recession.”
Oil prices also fell, with Brent crude down more than 5% at $33.71 a barrel.
On Wednesday, Mr Trump announced a ban on travellers from 26 European countries entering the United States for 30 days, starting on Friday, in order to fight the coronavirus outbreak.
In a televised address from the Oval Office, Mr Trump said the restrictions did not apply to the UK.
He also announced financial relief for US workers who are ill, quarantined or caring for others due to the illness. The emergency action will also see the US Treasury Department deferring tax payments without interest or penalties for certain businesses and individuals affected.
At the same time, the US government will provide capital and liquidity to small firms affected by the outbreak.
However, Michael Hewson, chief market analyst at CMC Market, said that it was “unsurprising” that financial markets reacted badly to the Presidential address.
He said that the new fiscal measures “don’t appear to go far enough”.
The falls in US shares mean the Dow is now 20% below its recent high, pushing it into what is known as a “bear market”. That brings to an end the longest streak of gains for US stocks to date, which started in 2009.
“It is not the virus itself, but rather the fear and panic related to the virus and the associated altered economic behaviour that could be a damaging tipping point, forcing the global economy onto a darker path,” said Katrina Ell, a senior economist at Moody’s Analytics.
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