The FTSE 100 Index was 124 points lower at 5526 in early trading amid speculation that a raft of Spanish regions were poised to ask for government bailout funds, increasing the likelihood that the country itself will turn to the EU for help.
Wall Street's Do Jones Industrial Average was also 1% lower as the yield on 10-year Spanish bonds rose to a euro-era high of 7.5% in a sign that investor confidence in the country's ability to control its finances is increasingly waning.
Vincent Forest, economist at the Economist Intelligence Unit, said: "It is now clear that Spain has entered a self-defeating cycle of austerity and economic contraction."
More top news
Bodies are being buried in backyards and overwhelming morgues as officials try to find another plot of land to lay them to rest.
Authorities have warned that the death toll is likely to rise as much of the building is yet to be searched.
The PM will sound out the possibility of new free trade agreements with Gulf states for once the UK has left the EU.