London’s main share index fell more than 1% as the political controversy in the US surrounding President Trump continued to hit investors’ confidence.
The row over the firing of FBI director James Comey has led to growing scepticism about Mr Trump’s ability to deliver tax and regulatory reform.
US shares fell heavily on Wednesday, and in London the FTSE 100 dropped 95.95 points to 7,407.52.
The pound, meanwhile, rose above $1.30 to its highest level since September.
Sterling was boosted by stronger-than-expected UK retail sales data, while also benefitting from the weakness of the dollar.
The pound was up 0.6% against the dollar at $1.3043, and was 0.9% higher against the euro at 1.1722 euros.
The sell-off in shares in London was echoed across Europe, with Germany’s Dax index down 0.9% and France’s Cac 40 dropping 1.2%.
“Stocks are sliding again today as traders are still spooked by the latest scandal surrounding Donald Trump,” said David Madden, market analyst at CMC Markets UK.
“The row between Mr Trump and the FBI is still on traders’ minds and while this is hanging over the market I can’t see sentiment changing anytime soon.”
Despite the falls, there was good news for some UK shares.
Burberry rose 2.6%, despite the luxury fashion brand reporting a dip in full-year profits, and shares in Royal Mail climbed 1.5% after it reported a 25% increase in annual profits.