London shares were off their worst by early afternoon on Thursday, but miners and oil stocks remained under pressure over fears that demand would be hurt by a prolonged economic downturn.

The FTSE 100 fell 2.9 per cent to 3,960.0, a fall of 120 points. In early trade, however, the benchmark index had been 239 points down.

This followed an overnight performance from US markets, where the S&P 500 lost 9 per cent, its worst loss since the crash of 1987, and in Asia, where the Nikkei 225 in Tokyo fell more than 11 per cent.

Worst hit were the stocks with greatest exposure to slowing demand for raw materials, like miners and metal and oil producers.

Miners fell as copper lost 4.2 per cent and lead shed 4.8 per cent on the London Metal Exchange. Lonmin slid 7.4 per cent to £12.96, while Vedanta Resources fell 6.4 per cent to 698p

Oil companies were sold off as the price of Brent crude on the International Commodity Exchange in London lost $2.32 to $68.48 a barrel. Tullow Oil fell 4.2 per cent to 482p and Royal Dutch Shell fell 5 per cent to £12.80.

Retailers, luxury brands and leisure and travel stocks took a hit as rising unemployment and slowing business activity tightened consumer spending.

Tui Travel was the worst performing stock on London's FTSE 100, down 21.5 per cent to 197p after German parent Tui said it would not make an offer for the company. Rival Thomas Cook Group fell 12 per cent to 166.6p.

Kingfisher, the home improvement retailer lost 7.4 per cent to 109.3p, Marks & Spencer fell 5.3 per cent to 210.3p and fashion retailer Next shed 7 per cent to 891p.

Legal & General fell 2.5 per cent to 70p - one of the smallest losses in the finacial sector - after the insurer moved to reassure investors that its capital base was strong, with surplus capital of £2.9bn. Even a 30 per cent fall in equity markets from the end of September would leave it with £2bn of surplus capital, the company added.