The Federal Reserve made it clear that worries about the global economy had influenced its decision to keep rates on hold.
“The outlook abroad appears to have become less certain,” said Fed chair Janet Yellen, at a news conference.
At lunchtime, the UK’s FTSE 100 was down 66.66 points, or 1%, at 6,120.33.
Bigger falls were seen elsewhere in Europe, with Germany’s Dax index down 2.5% and France’s Cac 40 dropping 2.6%.
Markets could now face a prolonged period of uncertainty as to the direction of US interest rates.
In London, banking stocks saw some of the biggest falls, with Royal Bank of Scotland down 2.6% and Barclays dropping 2.1%.
On the currency markets, the pound rose 0.35% against the dollar to $1.5646, and was up 0.4% against the euro at €1.3684.
Following the Fed’s decision the dollar fell sharply against the yen, dropping below the 120 yen mark. The move hit shares in Japan – particularly among exporting companies – and the country’s Nikkei index closed down 2%.
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