London’s top-flight index pulled back from an early 7 per cent plunge after the Bank of England pledged to intervene to help shore up the markets.
Governor Mark Carney said the Bank was prepared to provide £250 billion to support the markets, but added that “some market and economic volatility can be expected as this process unfolds”.
The FTSE 100 was down more than 4.6 per cent, or 294 points, at 6,044 as Carney’s comments appeared to calm the blue-chip index.
It comes after the London market tanked by more than 400 points following David Cameron’s announcement that he would quit as Prime Minister by October after Britain’s decision to leave the European Union.
European markets were also clawing back from hefty falls of more than 9 per cent, but remained heavily in the red, with Germany’s Dax down almost 6 per cent and the Cac 40 dropping more than 7 per cent.
Sterling began to creep back from its 10 per cent fall in the early hours of Friday morning, as it was down 7 per cent against the dollar at $1.392. The pound was down just under 5 per cent against the euro at €1.25.
Alex Edwards, head of dealing desk at UKForex, said: “The pound has recovered off of this morning’s low. Carney offered some reassurance to a market desperate for it.
“The next head to roll is likely to be Osborne, but it’s unlikely to give the pound any more impetus – a recovery through $1.40 seems very unlikely at this stage. The US reaction will be interesting, and we could still see fresh lows in the pound today.”
The London market resembled a sea of red, with heavy-weight financial stocks and travel firms falling sharply.
However, it was the housebuilders that bore the brunt of the slump, with Taylor Wimpey standing at the top of the biggest fallers, off more than 23 per cent. Persimmon was also down 23 per cent, while Berkeley Group slid 20 per cent.
Lloyds Banking Group took a hefty hit, down 20 per cent, while Barclays dropped 19 per cent.
Among the travel firms under pressure, British Airways-owner IAG was 19 per cent lower and budget airline EasyJet plummeted by the same margin.
The price of oil took a tumble, dropping 4.2 per cent to $48.76 a barrel in the wake of the Brexit decision.
However, safe haven stocks were soaring as gold rallied to a two-year high at $1,358, before paring back to $1,306.