Sharecast - The FTSE 100 was down 2.4% at 7,455.24.
Neil Wilson, chief market analyst at Markets.com, said: "Sentiment just seems to have evaporated, with big moves in fixed income markets and banking shares again, probably on a further slide in Credit Suisse (SIX:CSGN) shares and rise in its CDS.
"Looks like there are increasingly worried investors and counterparties looking at CS as potentially being the next shoe to drop."
As stocks took a battering, it became clear that Chancellor Jeremy Hunt’s Spring Budget would not be the story of the day.
Hunt already confirmed ahead of the Budget that energy bills support will be extended for a further three months, meaning the Energy Price Guarantee will not rise by £500 to £3,000 from April, as previously planned.
However, a separate voucher scheme, which gives £66 per month to every household, will still come to an end this month.
Victoria Scholar, head of investment at Interactive Investor, said: "The government is unlikely to carry out drastic spending increases or tax cuts because of the backdrop of inflation as well as the hangover from heavy spending during the pandemic on expensive programmes like the vaccine rollout, the furlough scheme and track and trace. Instead, Hunt will try to focus on fiscal prudence while still providing enough support measures to prop up the Conservatives’ popularity at a time when Labour is steaming ahead in the polls.
"All eyes were supposed to be on the Budget this week but the collapse of Silicon Valley Bank with concerns about financial contagion has superseded the famous red box. It has been a volatile week for financial markets as investors weigh up the negative economic impact from the bank’s failure versus the prospect of more accommodative monetary policy from the Bank of England and the Federal Reserve."
The Budget is due at 1230 GMT.
In equity markets, banks were the standout losers again, with Credit Suisse in freefall. According to reports, asked whether his bank was open to further injections of cash if there was another call for more liquidity, Saudi National Bank's chairman Ammar Al Khudairy said: "The answer is absolutely not, for many reasons outside the simplest reason which is regulatory and statutory."
Neil Wilson said: "If CS were to run into serious existential trouble, we are in a whole other world of pain. It really is too big to fail. Not sure the European Central Bank can go ahead with 50 basis points tomorrow in this febrile kind of environment."
Barclays (LON:BARC), Standard Chartered (LON:STAN), NatWest (LON:NWG), Lloyds (LON:LLOY) and HSBC (LON:HSBA) all fell.
Elsewhere, insurer Prudential (LON:PRU) slid even as it reported a better-than-expected rise in annual profit on the back of new insurance sales and said China’s relaxation of Covid restrictions had also provided a boost.
Online trading platform IG Group tumbled as it posted a decline in third-quarter revenues amid lower market volatility.
Media group Future was weaker after an initiation at ‘hold’ by Jefferies, which cited a cautious outlook.
On the upside, Balfour Beatty (LON:BALF) gained as the construction company posted a jump in full-year profit, announced a £150m share buyback and hailed a "strong" operational and financial performance across the group.
4imprint rallied as it reported a rise in full-year profit and revenue and proposed a special dividend.
Spirent Communications (LON:SPT) was boosted by an upgrade to ‘buy’ from ‘hold’ at Berenberg, while Ibstock was lifted by an upgrade to ‘buy’ at Numis.
Market Movers
FTSE 100 (UKX) 7,455.24 -2.38%
FTSE 250 (MCX) 18,689.12 -2.30%
techMARK (TASX) 4,495.58 -1.15%
FTSE 100 - Risers
United Utilities Group (UU.) 1,053.50p 0.96%
Haleon (HLN) 317.50p 0.63%
Severn Trent (LON:SVT) 2,828.00p 0.57%
GSK (GSK) 1,387.20p 0.49%
Relx plc (REL) 2,544.00p 0.28%
National Grid (LON:NG.) 1,060.50p 0.14%
Pearson (LON:PSON) 841.60p -0.07%
SEGRO (SGRO) 778.80p -0.18%
Fresnillo (LON:FRES) 735.00p -0.22%
Admiral Group (LON:ADML) (ADM) 1,914.50p -0.29%
FTSE 100 - Fallers
Prudential (PRU) 1,057.00p -10.65%
Ocado Group (LON:OCDO) 409.60p -7.16%
Barclays (BARC) 141.28p -7.09%
JD Sports Fashion (JD.) 157.90p -6.40%
Standard Chartered (STAN) 652.40p -6.37%
Abrdn (ABDN) 203.60p -5.83%
International Consolidated Airlines Group (LON:ICAG) SA (CDI) (IAG) 136.80p -5.42%
Melrose Industries (LON:MRON) (MRO) 149.00p -5.10%
Flutter Entertainment (CDI) (FLTR) 13,420.00p -5.09%
M&G (MNG) 198.15p -4.92%
FTSE 250 - Risers
Balfour Beatty (BBY) 357.00p 4.82%
Ibstock (IBST) 174.50p 3.44%
Spirent Communications (SPT) 177.90p 2.48%
Domino's Pizza Group (DOM) 270.20p 1.73%
UK Commercial Property Reit Limited (UKCM) 53.90p 1.51%
Pennon Group (LON:PNN) 871.00p 1.22%
Pacific Horizon Inv Trust (PHI) 611.00p 0.83%
VinaCapital Vietnam Opportunity Fund Ltd. (VOF) 441.50p 0.80%
Vietnam Enterprise Investments (DI) (VEIL) 564.00p 0.71%
Big Yellow Group (LON:BYG) 1,177.00p 0.68%
FTSE 250 - Fallers
IG Group Holdings (LON:IGG) 709.50p -8.10%
Carnival (NYSE:CCL) 647.40p -7.38%
Harbour Energy (LON:HBR) 263.30p -7.32%
ASOS (LON:ASOS) (ASC) 786.50p -7.25%
Tullow Oil (LON:TLW) 30.12p -6.92%
FDM Group (Holdings) (FDM) 797.00p -6.67%
Virgin Money UK (LON:VMUK) 142.05p -6.64%
Aston Martin Lagonda Global Holdings (AML) 244.90p -6.63%
Wizz Air Holdings (LON:WIZZ) 2,696.00p -6.55%
Intermediate Capital Group (LON:ICP) 1,201.50p -6.43%