The UK's top share index is facing its worst day since the financial crisis after it fell 8% in early trade, wiping billions off the value of major firms.

The drop follows global falls as a row between Russia and Saudi Arabia saw oil prices plunge by more than a fifth.

Shares were already reeling from fears of the impact of the coronavirus as cases globally continue to rise.

The day has already been dubbed "Black Monday" by analysts who described the market reaction as "utter carnage".

The FTSE 100 index fell more than 8% in the first few minutes of trade, before recovering slightly to stand 6% lower.

Oil prices are down more than 20% with Brent crude trading at $35.98 a barrel.

"It shows a level of nervousness in the market which I haven't seen in a long time," said Justin Urquhart-Stewart, co-founder of Seven Investment Management.

Investors are selling stocks at such a rate because they cannot quantify what Saudi Arabia and Russia might do, he said.

The hefty falls were also seen elsewhere in Europe, with stock markets in France and Germany opening 7% lower. Norway - a major oil exporter - saw its main stock exchange fall 12% in early trade.

Among the fallers:

• Oil firms saw the biggest falls in London, with shares in Shell and BP both down by about 15%, while Premier Oil saw its shares more than halve in value
• Miners also saw steep declines, with De Beers owner Anglo American and BHP Group all down more than 10%
• In Frankfurt, Deutsche Bank led the declines, falling 12%, followed by Mercedes-Benz maker Daimler, down 10%
• Similarly in Paris, banks such as Crédit Agricole and Société Générale fell 10%

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Among the winners:

• Gold earlier hit $1,700 per ounce, a seven-year high, but fell back to $1,677.
• Two-year UK government debt gained enough for its yield to be negative. In other words, investors won't recoup all their money once all the coupons have been paid. In-demand Swiss and European debt sometimes has negative yields.

Earlier on Monday, Asian markets had fallen sharply, with Japan's Nikkei 225 index down 5% while Australia's ASX 200 slumped 7.3% - its biggest daily drop since 2008.

In China, the benchmark Shanghai Composite fell 3%, while in Hong Kong, the Hang Seng index sank 4.2%.

As well as the slump in the oil price, Asian investors also reacted to a steep fall in Chinese exports, and figures showing the Japanese economy shrinking at a faster pace than expected.

Why should I care if stock markets fall?

Many people's initial reaction to "the markets" is that they are not directly affected, because they do not invest money.

Yet there are millions of people with a pension - either private or through work - who will see their savings (in what is known as a defined contribution pension) invested by pension schemes. The value of their savings pot is influenced by the performance of these investments.

Pension savers mostly let experts choose where to invest this money to help it grow. Widespread falls in share prices are likely to be bad news for pension savers.

As much as £600bn is held in defined contribution pensions at the moment.

So big rises or falls can affect your pension, but the advice is to remember that pension savings, like any investments, are usually a long-term bet.

 

'Political poker'

The price of oil had already fallen sharply this year as the coronavirus disease began to spread internationally, with demand for fuel expected to decline.

Last week, oil exporters' group Opec - which includes Saudi Arabia - agreed to cut production in order to support prices.

However, it also wanted non-Opec oil producers such as Russia to agree to cuts, and on Friday Russia rejected the plans.

In response, Saudi Arabia has cut its official selling prices for oil and plans to increase production. The move is seen as Saudi Arabia flexing its muscles in the oil market to make Russia fall into line.

Michelle Wiese Bockmann, commodities analyst and editor for Lloyd's List, said that the oil market has changed over the past few years and Saudi Arabia is scrambling to maintain its position in the market.

While cuts in production from Venezuela, Iran and Libya should have sent prices up, the US and its massive reserves of shale oil have stepped in at every turn, depressing prices.

"It's already a very volatile situation," she said.

Mr Urquhart-Stewart said the market has "gone from an issue over economic demand into more of a political game of poker".

Given that Saudi Arabia has some of the lowest costs of production, they can send prices down a long way before having to relent, he added.

Analysis

by Andrew Walker, World Service Economics Correspondent

The price of crude oil is about half the level it hit in early January.

The root cause of that is the coronavirus. It has hit demand for oil and some of the big exporters have been trying to stabilise its price.

Last week a group of them discussed production cuts.

But the biggest producer among them, Russia refused and the oil price fell further.

Then at the weekend, Saudi Arabia, the biggest of the producers that were pressing Russia to agree output cuts, announced it would increase supplies and offered discounts to its buyers. That sent the oil price into freefall.

That in turn undermined stock markets, although it wasn't the only factor. The lower oil price is a problem for the credit markets.

Many American shale producers are likely to be unviable and they have borrowed in the high risk debt market, issuing what are called junk bonds. So there is the potential for losses for investors who hold those bonds.

Cheaper oil is obviously a benefit for users. Airlines have been hit by a decline in bookings, but cheaper fuel will offset that a little. And in time, there will be an impact on the price that motorists pay, although in many countries, including Britain, tax accounts for most of what they pay.