Sharecast - At 0820 GMT, the FTSE 100 was down 1.6% at 7,757.56. In the US, the Dow closed 1.7% lower, while the S&P 500 and the Nasdaq slid 1.9% and 2.1% respectively, as bank shares tumbled.
The selloff was sparked by tech-focused bank SVB Financial, which plummeted 60% after it announced plans to raise more than $2bn in capital to help offset losses on bond sales.
Looking ahead to the rest of the day, the payrolls report for February is due at 1330 GMT, along with the unemployment rate and average earnings.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV), said: "A catalyst for upwards movement in global markets would be a weaker US jobs report today, which would act as a clear marker that core inflation could start to come down in the US.
"While the February jobs report is expected to show that hiring slowed from January’s large gain, a strong report will put further pressure on equities. The market could be spooked if it believes rates could reach the 6% mark, which would deepen recession fears and is a large reason we’ve seen US financials come under heavy pressure in recent trading."
On home shores, data out earlier from the Office of National Statistics showed that the UK economy returned to growth in January, raising hopes that a recession will be avoided.
GDP grew 0.3% on the month following a 0.5% contraction in December, coming in ahead of consensus expectations for 0.1% growth.
Growth was driven by the services sector, which expanded 0.5% after a 0.8% contraction in December. The biggest contributors were education, transport and storage, human health activities, and arts, entertainment and recreation activities, all of which rebounded after falls in December.
ONS director of economic statistics, Darren Morgan, said: "The economy partially bounced back from the large fall seen in December. Across the last three months as a whole and, indeed over the last 12 months, the economy has, though, showed zero growth.
"The main drivers of January's growth were the return of children to classrooms, following unusually high absences in the run-up to Christmas, the Premier League clubs returned to a full schedule after the end of the World Cup and private health providers also had a strong month."
Morgan said postal services also partially recovered from December's strikes, although this was somewhat offset by a notable drop in construction.
Ruth Gregory, deputy chief UK economist at Capital Economics, said that looking beneath the surface, the figures suggest the economy is on weaker ground than it appears. "The rise was largely a reflection of the fewer number of strikes than in December," she said. "This meant that a lot of the falls in output in December were reversed."
In equity markets, banks were the standout losers, with HSBC, NatWest (LON:NWG), Standard Chartered (LON:STAN) and Lloyds all sharply lower.
Transport operator FirstGroup was in the red despite lifting annual guidance as passenger traffic on its buses and trains continued to recover from Covid pandemic levels.
Housebuilder Berkeley Group also fell as it backed its outlook for 2023.
Schroders (LON:SDR) was under the cosh after a downgrade to ‘neutral’ from ‘outperform’ at Credit Suisse (SIX:CSGN), while Segro was hit by a downgrade to ‘equalweight’ at Barclays (LON:BARC).
Outside the FTSE 350, recruiter Robert Walters ticked higher as it reported record profits, driven by the tight labour market and surging wage inflation, as it announced that its long-standing chief executive was stepping down.
Market Movers
FTSE 100 (UKX) 7,757.56 -1.55%
FTSE 250 (MCX) 19,363.90 -1.67%
techMARK (TASX) 4,613.80 -0.94%
FTSE 100 - Risers
National Grid (LON:NG.) 1,064.00p 1.96%
Severn Trent (LON:SVT) 2,791.00p 0.69%
Convatec Group (CTEC (LON:CTEC)) 223.20p 0.63%
Centrica (LON:CNA) 106.65p 0.42%
SSE (LON:SSE) 1,731.00p 0.29%
United Utilities Group (UU.) 1,038.50p 0.19%
Reckitt Benckiser Group (RKT) 5,820.00p 0.14%
Unilever (LON:ULVR) 4,116.00p 0.10%
Diageo (LON:DGE) 3,539.00p 0.01%
Barclays (BARC) 163.42p 0.00%
FTSE 100 - Fallers
HSBC Holdings (LON:HSBA) 592.90p -4.54%
NATWEST GROUP (NWG) 280.30p -4.43%
Standard Chartered (STAN) 742.40p -4.21%
Lloyds Banking Group (LON:LLOY) 49.37p -4.06%
Schroders (SDR) 460.60p -3.86%
Prudential (LON:PRU) 1,231.50p -3.75%
Rolls-Royce Holdings (LON:RR.) 152.12p -3.75%
Ocado Group (LON:OCDO) 465.00p -3.65%
Scottish Mortgage Inv Trust (SMT) 676.40p -3.56%
Glencore (LON:GLEN) 456.75p -3.52%
FTSE 250 - Risers
Trainline (TRN) 264.80p 4.54%
Twentyfour Income Fund Limited Ord Red (TFIF) 103.00p 0.98%
Chemring Group (CHG (LON:CHG)) 288.00p 0.52%
Drax Group (LON:DRX) 636.00p 0.47%
ICG Enterprise Trust (ICGT) 1,120.00p 0.36%
Abrdn Private Equity Opportunities Trust (APEO) 460.00p 0.00%
Vietnam Enterprise Investments (DI) (VEIL) 558.00p 0.00%
SDCL Energy Efficiency Income Trust (SEIT) 89.90p 0.00%
Alliance Trust (LON:ATST) 1,008.00p 0.00%
Scottish American Inv Company (SAIN) 507.00p 0.00%
FTSE 250 - Fallers
ASOS (LON:ASOS) (ASC) 854.00p -6.05%
Molten Ventures (GROW) 346.00p -5.72%
Carnival (NYSE:CCL) 732.60p -5.35%
Tullow Oil (LON:TLW) 31.00p -5.31%
Virgin Money UK (LON:VMUK) 161.35p -5.17%
Intermediate Capital Group (LON:ICP) 1,332.50p -4.58%
Bridgepoint Group (Reg S) (BPT) 230.60p -4.47%
Synthomer (LON:SYNTS) (SYNT) 138.50p -4.28%
TBC Bank Group (TBCG) 2,265.00p -4.03%
Currys (CURY) 73.85p -3.90%