SUPERMARKET shares plunged and global stock markets sank into the red as last week's post-Brexit relief rally unravelled while the pound also fell to fresh 31-year lows against the dollar.
The FTSE 100 Index was down 81.8 points at 6463.6 and there were also hefty falls across European indices amid mounting fears over the impact of the vote to leave the EU.
Sterling slumped below 1.28 US dollars for the first time since 1985 at one stage and also dropped as low as 1.16 euros before paring back losses slightly.
The pound was later down 0.8% against the dollar at 1.29.
The market falls brought an abrupt halt to last week's bounce-back, with moves by fund managers to lock down their commercial property funds fuelling investor fears.
Britain's biggest grocers also took a hammering amid reports that Asda could slash prices over the summer and send profits plunging across the sector.
Tesco was the biggest faller on the London market, tumbling 8% or 14.2p to 161.6p, after HSBC analyst David McCarthy warned that Asda was eyeing a "major price repositioning" that could "seriously damage sector profitability".
Morrisons also came under fire, down more than 7% or 13.4p to 172.4p, while Sainsbury's fell 3% or 8.3p to 214.6p.
HSBC downgraded Tesco from buy to hold and Morrisons from hold to reduce, while also cutting its price target for Sainsbury's from 175p to 165p.
In Europe, Germany's Dax was 1.6% lower and the Cac 40 in France was down 1.8%, with oil prices also dropping in a sign of the market jitters.
Brent crude fell 0.5% to 47.72 US dollars a barrel.
Craig Erlam, senior market analyst at OANDA, said: "Negativity finally appears to have gripped investors following a rebound last week that appeared to suggest that Brexit fears were easing.
"These have ramped up this week, with the latest concerns coming from the commercial property sector after funds blocked withdrawals due to a lack of liquidity in the market."
Henderson Global Investors, Canada Life, and Threadneedle became the latest investment firms to put their commercial property funds on lockdown, joining M&G Investments, Aviva and Standard Life Investments, which have all suspended trading in their UK commercial property funds since Monday.
The property woes added to warnings from the Bank of England that Brexit effects were already taking hold, as well as a slew of recent economic figures pointing to a sharp slowdown in growth.
A move by the Bank to help prop up the British economy on Tuesday, by relaxing rules for banks to boost lending by up to £150 billion, failed to halt the pound's slide.
Andy Scott, economist at HiFX, warned there would be further falls for sterling, predicting a drop to 1.25 US dollars and 1.10 euros.
He said the pound would suffer as the "economic outlook significantly worsens and the UK awaits political leadership to provide some certainty".
While the FTSE 100 still remains above its pre-Brexit vote highs, it is a gloomier picture in the FTSE 250 Index, which is more than 10% below its level before the referendum result.
The second tier, which is seen as a more accurate barometer of UK sentiment, was down another 0.4% in the latest sell-off.
Precious metal stocks were in the ascendency as investors headed to safe havens. Silver miner Fresnillo was up 6% or 115p to 2008p, while gold miner Randgold Resources rose 4% or 405p to 9715p.
However, property market fears saw housebuilders endure another session in the red, with blue chips Barratt Developments and Taylor Wimpey dropping by 17.7p to 332.6p and 5.4p to 115.9p respectively after heavy declines on Tuesday.
Fellow builder Redrow dropped 5% or 16.3p to 275.6p in the FTSE 250, while estate agents Savills and Countrywide were also under pressure.
Airlines joined them in negative territory, with British Airways owner IAG down 25p to 353.5p and easyJet off 38p to 1018p.
The biggest risers on the FTSE 100 Index were Fresnillo up 115p to 2008p, Randgold Resources up 405p to 9715p, Whitbread up 47p to 3452p, Glencore up 1.8p to 159.7p.
The biggest fallers were Tesco down 14.2p to 161.6p, Morrisons down 13.4p to 172.4p, Lloyds Banking Group down 3.5p to 47.6p, IAG down 25p to 353.5p.
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