Listen to Gary Duncan on today's economic turmoil

A triple hit left London shares reeling, with the FTSE 100 index heading for its sharpest points fall in eight months.

Markets were spooked by a warning of a US recession from Alan Greenspan, the former US Federal Reserve chairman, along with Shanghai's biggest one-day percentage fall in a decade. Threats of a windfall tax on mining companies in South Africa also hurt sentiment.

The blue-chip FTSE fell as much as 111.5 to 6323.2 - its biggest points loss since June of last year, when the threat of higher US interest rates sent the benchmark into reverse by 143.3 points. The broader FTSE 250 index reached 11,330.60, down 281.8 points.

That decline was mirrored in European markets, which took their lead from the Far East. The Shanghai & Shenzhen 300 index tumbled 9.3 per cent, its largest fall since its inception in 2005, while the broader composite index dropped 8.8 per cent to register its worst drop in ten years.

Meanwhile, futures markets pointed to a weaker opening on Wall Street after Alan Greenspan suggested that the US may slip into recession by the end of the year.

"Global stock market moves such as this are a sign of the times. China’s ever-increasing influence on the world economy has forced traders to pay more attention to the ramifications of moves like this," Martin Slaney, head of spread betting at GFT Global Markets, said. "We mustn’t forget that the Chinese composite Index soared over 130 per cent last year, so a correction was well overdue and could even prove healthy."

London's mining shares were hit hardest, with Xstrata, Anglo American and BHP Billiton all down more than 4 per cent. That followed South Africa’s Business Day newspaper report that a task force set up by Trevor Manuel, the Finance Minister, had recommended that the Government impose a windfall tax on excessive profits at mining companies.

Meanwhile, Vedanta Resources was further hurt by news that Navin Agarwal, deputy chairman, had sold 50,000 shares in the Indian miner. He is the brother of Anil Agarwal, Vedanta's chairman, who owns 54 per cent of the group.

The mood was not helped by the banking sector, where Standard Chartered fell 2.7 per cent after its annual earnings only matched City expectations. Some investors had been hoping for a positive surprise on the costs line.

Defence groups such as BAE Systems and Meggitt were on offer after The Times revealed that the Treasury is threatening to cut defence projects worth up to $35 billion in the Government's next spending round.

Rolls-Royce was further affected by news that Qantas had favoured General Electric for an engine order. The deal - which involved supplying 50 planes with two engines plus a spare at $10 million apiece - was believed to be the biggest order in Rolls's pipeline of prospects.

Reuters and Home Retail Group were the only two positive features amid a sea of red.

Reuters inched higher after Credit Suisse upgraded the news agency to "outperform" ahead of its earnings due on Thursday.

The Argos and Homebase owner Home Retail Group climbed on whispers that it could be a target for a private equity fund. Apax was among the names mentioned by traders, who reckoned a bid of around 530p looked possible.

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