Update: The FTSE 100 has lifted off lows, buoyed by a rebound from US markets, which opened higher after entering correction territory with a sharp sell-off yesterday.
The UK blue-chip index was trading at 7,151 points, down 22 points, or 0.3%, on the day but off a low ot 7,103.
It was handed a boost from the Dow Jones, which opened 1.2% higher after yesterday's 4.2% fall. The broader S&P 500 index rose 1%, having fallen 3.8% yesterday.
The FTSE 100 was also buoyed by a fall in the pound, trading 0.8% lower against the dollar at $1.381, after the European Union's Brexit negotiator Michel Barnier warned a transition period was not a done deal.
A weaker pound tends to support the FTSE 100, whose companies rely on overseas markets for around three-quarters of their earnings.
(8:40) FTSE falls on US sell-off
The FTSE 100 has dipped after US markets officially entered correction territory with a renewed sell-off on the Dow Jones.
The UK blue-chip index opened 36 points, or 0.5%, lower at 7,135, after another day of heavy selling in the US saw the Dow Jones slump 4.2% to 23,860 and the S&P 500 drop 3.8%.
The Dow is now down more than 10% from its peak of 26,617 on 26 January, making the market sell-off since then an official correction.
The US sell-off injected fresh jitters into global markets, with Japan's Nikkei 225 closing 2.3% lower, China's Shanghai Composite index falling 4.1% and Hong Kong's Hang Seng down 3.1%.
But Asian markets were off lows seen earlier in their trading sessions, and European markets have opened to more moderate losses.
The French CAC 40 was down 0.6% while the German Dax 30 dropped 0.4%.
'It would appear that the brief respite for stocks seen in the middle of the week turned out to be the eye of the storm as once again rising bond yields prompted a further bout of selling across the board, not only in the US last night but in Asia again this morning,' said Michael Hewson, chief market analyst at CMC Markets UK.
The yield on US 10-year treasuries climbed to 2.86%, looking to retest four-year highs.
'While this continued optimism about how the US economy is likely to perform is a good thing, for US stocks whose valuations are still at elevated levels, they may not be particularly good news given that yield differentials are no longer working in their favour, unlike in Europe where dividend yields are still higher than the yield on government debt,' said Hewson.
On the FTSE 100, utilities were in the red, hurt by the fresh fears over the bond market.
Losses were more limited on the FTSE 250, down just 0.1%, although Asia and emerging-markets focused investment trusts bore the brunt of the selling.
Templeton Emerging Markets (TEM) fell 3.1% to 726p, Fidelity China Special Situations (FCSS) was down 2.4% at 223p, Vietnam Enterprise (VEIL) slumped 2.4% to 455p and Schroder Asia Pacific (SDP) was 2.3% lower at 428p.
Among 'small-cap' stocks, shares in Hogg Robinson (HRG) surged 48.7% to 116p after the business travel company agreed to a takeover by American Express (AXP.N).
Trinity Mirror (TNI) was up 7.5% at 75p after the newspaper group agreed to buy rival titles the Daily Express and Daily Star for £126.7 million.
The JPMorgan Chinese (JMC) investment trust was the heaviest faller on the index, down 6.1% at 285p.