Update: The FTSE 100 has fallen sharply into the red, down 2% at 7,209, as the pound jumped following the delay to Brexit and US bond markets sparked fears of a recession in the world's largest economy.
Sterling rose nearly a cent against the dollar to trade at $1.319 after the European Union gave May until 12 April to secure MPs' backing for her Brexit deal. Should she succeed, the deadline will be extended to 22 May.
That weighed on the FTSE 100, whose stocks rely on overseas markets for around three-quarters of their earnings.
The UK blue-chip index fell further into the red as US markets opened lower, with investors eyeing a closely-watched signal of recession in the bond markets.
The yield on three-year US government debt, or treasuries, rose above that on 10-year treasuries this afternoon for the first time since 2007.
This 'inversion', taken by many to be a leading indicator of recession, followed disappointing US manufacturing data.
The US S&P 500 index slumped 1.2% at the open.
(11:50) Pound rises as EU agrees Brexit delay
The pound has strengthened after EU officials granted prime minister Theresa May a short delay to Brexit, giving her two weeks to get her deal through parliament.
The pound rose to $1.314 against the dollar as the EU gave May until 12 April to secure MPs' backing for her deal which would then extend the deadline for the UK’s departure to 22 May.
If parliament rejects her deal for a third time, MPs will have two weeks to decide an alternative way forward but this increases the risk the UK will crash out of the EU in three weeks’ time.
However, May first has to get her deal past Commons speaker John Bercow who has ruled that MPs would only be allowed to vote for a third time if there is ‘substantial’ change to the agreement.
‘The government could argue the EU’s Article 50 statement, combined with further crystallisation of Brussels' Brexit "reassurances" from last week, could be cast as a "substantial change" to the deal,’ said ING developed markets economist James Smith. ‘If the government can also get a significant number of MPs to sign the motion, it hopes it can signal there is a will in parliament to hold a repeat vote.
‘However, the fact the government is having to use these rarely-used mechanisms to force "meaningful vote three" demonstrates it will be very tricky for the prime minister to hold further votes on her deal again.’
The pound's rise weighed on the FTSE 100, whose stocks rely on overseas markets for around three-quarters of their earnings, sending the index 86 points, or 1.2%, lower to 7,270.
AstraZeneca (AZN) dropped 1.6% to £64.22, as investors in the pharmaceutical giant were spooked by a slump in the shares of US-listed Biogen (BIIB.O) following the scrapping of two of its Alzheimer drug trials.
'Sadly, drug setbacks are par for the course when it comes to investing in this part of the market,' said AJ Bell investment director Russ Mould. 'Not every treatment works and investors should understand there are major risks to all new developments until they are fully approved and in active use. Even then there is the commercial risk of generic copycats once patents expire.'
After spiking at the open, Smiths Group (SMIN) fell back to trade at £14.47, up 3p on the day, on news of the break-up of the industrial conglomerate.
This was despite lacklustre results, in which Smiths Group reported group revenues up by just 2%, while operating margins, operating profits and reported profits disappointed.
Helal Miah, investment research analyst at broker The Share Centre, said: ‘The two separate businesses should be more focussed allowing them to concentrate on their respective specialist fields. As a conglomerate, Smiths Group will be a less diversified industrial group, but investors in this day and age can still diversify their portfolios very easily so it should not be any major concern.
‘We still take a positive view of the various underlying market exposures and see the 15x forward price-earnings ratio as attractive compared to the peer group alongside a reasonable 3% dividend yield.’
Debenhams (DEB) shares dived 34.3% to 1.9p, as the struggling department store announced plans to restructure its debt that would effectively wipe out shareholders.
Management is seeking to raise £200 million from lenders and bondholders, above the £150 million it originally stated, in an effort to fend off a buyout from Sports Direct boss Mike Ashley. The company has launched a consent solicitation for holders of its 5.25% bonds due in 2021.
‘If it proceeds on this course there would no equity value left for existing shareholders,’ said Neil Wilson, chief market analyst at Markets.com. ‘Management is taking pretty drastic action here.’
Sports Direct responded by saying it was prepared to buy Debenhams' Danish business Magasin du Nord for £100 million in return for installing Ashley as Debenhams chief executive.
‘Debenhams would have the right to buy it back for the same amount within a year – a 12-month option on the business, amounting in effect to short-term £100m loan secured against Magasin du Nord’ said Wilson.