LONDON, England - June 1, 2010 - The FTSE 100 joined a fresh global market sell-off and the euro hit new four-year lows on jitters for the world economy after a fall in Chinese factory production and worries over the ability of European banks to weather an escalating eurozone crisis.

The euro fell more than 1% against the dollar to $1.2115 as deteriorating sentiment along with rising tensions in the Middle-East following Israel's storming of Gaza-bound aid ships fuelled safe-haven demand for the dollar.

London's index of leading UK shares had lost 1.6% when New York markets opened, with the Dow Jones, S&P 500 and Nasdaq down between 0.4% and 0.8%.

Investors digested news that production in China's factories was cut back in May due to falling orders at home and abroad and a warning that eurozone banks may have to write down a further €195bn (£165bn).

A 16% fall in BP's share price after its failure to cap the catastrophic oil spill in the Gulf of Mexico with its “top kill” operation and talk of a potential U.S. criminal investigation also weighed on shares in London.

Gold rose above $1,220 an ounce as investors bought the metal as a haven from risk.

In Europe, Germany's DAX fell 1.4% and France's CAC 1.6% as bank stocks fell following warnings of the potential bank writedowns in the European Central Bank’s latest Financial Stability report.

“We are experiencing now a second wave of writedowns, which relate to the performance of loans,” said Lucas Papademos, the ECB’s vice-president.