World stocks tumbled Wednesday as growing concern about emerging market economies added to trade war uncertainty, while the British pound was boosted by a report that Germany has softened its Brexit negotiation stance.
A Bloomberg News report claimed that the British and German governments had dropped key Brexit demands, easing the path to a deal.
Sterling's new-found strength in turn weighed on London stocks which closed over one percent lower, as did eurozone key markets Frankfurt and Paris.
Wall Street failed to lend much support, with the Dow index flatlining close to midday in New York.
"Risk aversion remains at the forefront of the current market sentiment," said Lukman Otunuga, a research analyst at FXTM.
After Turkey and Argentina's recent headline-making problems, South Africa became the latest emerging market (EM) country to spark panic with data showing a shock plunge into recession for the one-time economic starlet.
The news sent the rand sliding in a similar way to the Argentine peso and Turkish lira in recent weeks.
"South Africa is back in recession and that was not expected," said Greg McKenna, chief market strategist at AxiTrader.
- Tipping point -
The brewing EM crisis has seen currencies in a number of emerging markets -- in particular those with deep current account deficits -- take a hammering.
"It has certainly been a terrible trading week thus far for most major EM currencies as investors begin to compare the ongoing pressure in EM currencies to the 1997 Asian financial crisis," said Otunuga at FXTM.
India's rupee was sitting at a record low and the Indonesian rupiah at levels last seen during the 1998 Asian financial crisis.
Indonesia said it would take unspecified action against currency speculators and announced plans to delay import-heavy energy projects to focus efforts on reducing imports and supporting the rupiah.
McKenna at AxiTrader said the "big question" was now whether this was "a tipping point for EM markets".
- Brexit detente? -
The British pound surged nearly one percent against the dollar, and about 0.4 percent against the euro on the day, after Bloomberg News reported that Berlin and London were softening Brexit demands to get a deal done.
Citing people familiar with the matter, it said Germany was ready to accept a less detailed agreement on Britain's future economic and trade ties with the EU. The UK side was also willing to settle for "a vaguer statement of intent on the future relationship".
Brexit Secretary Dominic Raab, however, told a parliamentary committee on Wednesday that the government had to be "very clear" about its choices.
There would be much scrutiny "if people thought we were signing up to a withdrawal agreement with a nebulous and unclear destination point", he said.
A German government spokesman, meanwhile, told AFP that the "German government's position has not changed".
Berlin has "complete confidence" in the ongoing Brexit talks, led on the EU side by chief negotiator Michel Barnier, the spokesman said.
- Key figures around 1540 GMT -
London - FTSE 100: DOWN 1.0 percent at 7,383.28 points (close)
Frankfurt - DAX 30: DOWN 1.4 percent at 12,040.46 (close)
Paris - CAC 40: DOWN 1.5 percent at 5,260.22 (close)
EURO STOXX 50: DOWN 0.8 percent at 3,333.18
New York - Dow: FLAT at 25,955.09
Tokyo - Nikkei 225: DOWN 0.5 percent at 22,580.83 (close)
Hong Kong - Hang Seng: DOWN 2.6 percent at 27,243.85 (close)
Shanghai - Composite: DOWN 1.7 percent at 2,704.34 (close)
Euro/dollar: UP at $1.1626 from $1.1600 at 2100 GMT
Pound/dollar: UP at $1.2956 from $1.2900
Dollar/yen: DOWN at 111.56 yen from 111.45 yen
Oil - Brent Crude: DOWN 67 cents at $77.50 per barrel
Oil - West Texas Intermediate: DOWN 73 cents at $69.13