By Helen Reid
LONDON (Reuters) - Britain's major share index had its worst day since the Brexit vote on Tuesday as a violent global sell-off in stock markets and a spike in volatility shook investors.
The FTSE 100 (FTSE) closed down 2.6 percent at 7,141.4 points at the end of a chaotic day of trading which drove volatility sharply higher.
It suffered its worst daily fall since June 24, 2016, when Britain's vote to exit the European Union roiled global markets. The index touched its lowest level since December of that year as investors rushed out of equities, which have surged since the start of the year.
"There's a sense of relief that we finally have a meaningful correction; it's long overdue. We have been positioned for it for a while, so we can actually breathe again," said Christopher Peel, chief investment officer at Tavistock Wealth.
"This type of price action, where you have a correction as severe as it has been, is a great reminder to investors, traders and regulators that it's not all a one-way bet," he added.
"It's ultimately a good thing, so that we get some long-term investors that do have cash on the sidelines selectively adding to their positions."
Volatility surged across the European market, with the gauge of STOXX 50 volatility (V2TX) posting its biggest one-day gain ever.
The stars of the past months' rally were the worst fallers on Tuesday.
Financials led the slide, taking 53 points off the index. HSBC (L:HSBA), Prudential (L:PRU), Lloyds (L:LLOY) and Barclays (L:BARC) tumbled 2.5 to 4 percent.
Asset managers also featured prominently among the worst-performing stocks as the global markets "melt-up" reversed, pummelling investors' portfolios.
Investment trust Scottish Mortgage (L:SMT) tumbled 5 percent as the sell-off in U.S. tech stocks took its toll on the fund, whose top holdings include Amazon (NASDAQ:AMZN) and Tesla.
Asset managers Standard Life Aberdeen (L:SLA) and Schroders (L:SDR), and retail investment platform Hargreaves Lansdown (L:HRGV) dropped 4.4-5.1 percent, among top fallers.
Hedge fund firm Man Group (L:EMG) was the biggest weight on the FTSE 250, its shares tumbling 6.5 percent.
Oil majors BP (L:BP) and Royal Dutch Shell (L:RDSa) also took a sizeable chunk out of the blue-chip index as the rout in equities sent crude prices tumbling.
Mid- and small-caps were not spared from the sell-off.
The FTSE 250 (FTMC) slid 2.2 percent, in line with the small-cap index (FTSC) that also suffered its biggest one-day fall since the Brexit referendum.
Ocado (L:OCDO) shares fell 3.2 percent after the online supermarket said investment would hold back 2017-18 earnings, and that it was placing about 5 percent of its equity.
"Given the balance sheet leverage and the need for capital in respect to Ocado Smart Platform deals, we are not entirely surprised with the share placing this morning," wrote Berenberg analyst Victoria Maigrot.
"However the timing is unfortunate given the equity market moves we have seen in the U.S. yesterday."
"We have no pricing info yet but suspect the placing was at a discount."
An outlier was outsourcer Capita (L:CPI) whose shares jumped 13 percent, with traders saying the stock was still feeling the benefit of fund manager Neil Woodford's positive comments on the company.
Capita shares were still down 45 percent from their level prior to its profit warning on Jan. 31.
