Having risen to a fresh 12-year closing high of 6,840 yesterday, the blue chip index fell back 2% to 6,707 this morning, with only three of its 100 constituents in the black.

The widespread sell-off followed the 7.3% plunge in Japan’s Nikkei overnight, prompted by Federal Reserve chairman Ben Bernanke’s comments that US quantitative easing could begin to ‘taper’ if the economy continues to improve.

Equity markets across Europe gave up some of their recent gains, with indices in Germany, France, Spain and Italy all down by over 2%.

It was a similar picture in Asia overnight, as markets retreated following the first contraction in HSBC’s China Purchasing Managers’ index for seven months.

Hong Kong’s Hang Seng dropped 2.6%, with the Shanghai Composite down 1.2%.

In the US, the S&P 500 earlier closed down 0.8% at 1,655, as treasury yields moved back up towards the 2% mark.