The Footsie index of 100 leading shares has plunged 84.8 points as a series of warnings from technology groups in North America led to a sell-off in the sector. The index now stands at 6113.1.
Investors in the UK had been bracing themselves after Canadian group networking equipment maker Nortel Networks halved its earnings forecast and said it would be cutting 10,000 jobs, citing the sharp downturn in the US economy.
Texas-based computer giant Dell Computers added to the negative sentiment by making its first ever job cuts, and warning that first quarter profits would be below expectations.
Meanwhile, Hewlett-Packard said problems in its computer business meant it didn't expect to return double-digit revenue growth this year.
In the UK, telecom stocks are the hardest hit, with Spirent dropping by more than 10%, or 49½p, to 438½p. Marconi is off nearly 10%, or 58½p at 544½p. BT has shed 20p at 570p, Vodafone is off 6½p at 209¾p, Colt Telecom is 64p lower at £14.06 and Cable & Wireless has fallen 26½p to 791½p. Orange, which floated at around 639p earlier this week, is down 16p at 557p.
Among the tech stocks, Arm Holdings is down 8%, or 36p, at 407p, Dimension Data is off 29½p at 435p, while Sage is 16p lower at 327p.
FTSE-250 stocks which took a battering include Bookham Technologies, off 75p at 680p, Kingston Communications, down 10¾p at 181p and Thus, off 3¼p at 73¾p.
Investors are flocking to defensive stocks, boosting FTSE-250 stock Scottish & Newcastle, which is 4% ahead, up 22p at 512p. High street chemist Boots is also up, rising 7½p to 612p, while United Utilities is up 9p at 615p.
Another riser is kettles-to-toasters group Kenwood Appliances, up 15% after agreeing a 100p-per-share offer from Italian rival De'Longhi, which values the firm at around £45 million. Shares have popped up a 12½p rise, to 98½p.