A STOCK market bloodbath saw £56 billion wiped off the FTSE 100 on Thursday as fears that the arrest of a senior Huawei official in Canada could reignite tension between the US and China.
London's blue-chip index closed 217.79 points, or 3.2 per cent lower, at 6,704.05. France's Cac was down 3.3% while Germany's Dax fell 3.5%.
Huawei's chief financial officer, Meng Wanzhou, faces possible extradition to the United States after her arrest on suspicion of trying to evade sanctions against Iran.
A Chinese government statement said Meng broke no US or Canadian laws and demanded Canada "immediately correct the mistake" and release her.
David Madden, market analyst at CMC Markets, said: "Equity markets suffered severe losses as investors are worried the relationship between the US and China has been strained by the arrest.
"The US-China relationship was moving in the right direction after the G20 summit, and now dealers feel all the good work could be undone. It is a broad-based sell-off that we are seeing in London, as mining, energy, financial and consumer stocks are all lower."
Sterling was trading relatively flat against both the US dollar and euro at 1.277 and 1.123 respectively as Brexit fears kept the British currency shackled.
Brent crude was trading down 2.8% at $59.77 a barrel despite Opec countries agreeing to cut oil production.
Crude has been falling since October as countries such as the US and Saudi Arabia produce at higher rates, and due to fears that weaker economic growth will dampen energy demand.
Mr Madden said: "The cartel will give further details on the size of the cut tomorrow, but traders are sceptical it won't be enough to prop up the price. Going into the meeting, there was talk of a 1.4 million-barrel cut, and it was reported that Saudi Arabia are keen for a cut of only 1 million barrels.
"The energy information administration report showed that US oil stockpiles by 7.32 million barrels, while traders were only expecting a drop of 942,000 barrels."
In corporate news, Ted Baker has reported a dip in third-quarter sales and confirmed that Herbert Smith Freehills will conduct a probe into harassment allegations levelled at chief executive Ray Kelvin.
The under-fire retailer said the law firm will carry out an "independent external investigation" after a petition emerged calling on the fashion brand to "end harassment", accusing Mr Kelvin of enforcing a "hugging" culture.
Ted Baker shares closed 44p, or 3%, higher at 1,511p.
Insurance firm Beazley has warned that it will take a $40 million (£31.4 million) hit from claims linked to wildfires in California.
More than 50,000 people in the West Coast state were forced to flee wind-driven flames in November that burned 240 square miles.
Beazley shares fell 25p, or 4.6%, to 517.5p.
Meanwhile, Royal Bank of Scotland (RBS) is to shift £13 billion worth of business to the Netherlands if the UK crashes out of the European Union with no deal.
About 30% of the customers for its investment banking unit, NatWest Markets, will move to the lender's new Dutch subsidiary as well as existing transactions by March 4 in the event of a disorderly Brexit.
RBS shares declined 10p, or 4.5%, to 212p.
The biggest risers on the FTSE 100 were Randgold Resources were up 174p to 6,556p, Fresnillo up 8.4p to 783p, and Severn Trent up 1p to 1,853.5p.
The biggest fallers on the FTSE 100 were Antofagasta down 57.80p to 760p, Prudential down 94.50p to 1,410p, Schroders down 152p to 2,357p, and Melrose Industries down 9.85p to 156.5p.
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