Oil majors BP Plc and Royal Dutch Shell fell 3% and 2.5% respectively, with banking and mining stocks also contributing to a 3% drop for the FTSE 100 index.

Europe's biggest bank, HSBC, cut a number of top management roles in its investment bank despite a wider firing freeze, according to memos seen by Reuters. Its shares were down 4.5%.

Investors were on edge after U.S. crude oil futures for delivery in May fell for the first time on Monday to as much as negative $40 a barrel, with sinking oil demand since the start of the coronavirus outbreak squeezing storage facilities.

While that trade was seen as anomalous, steep declines in both Brent and U.S. crude oil futures expiring in June on Tuesday fuelled further worries of a demand shock.

"It's a sensible reaction (from equity markets). It's fairly clear the technical conditions that drove the move yesterday," said Ian Williams, economics & strategy research analyst at Peel Hunt. "But demand is not going to come back anytime soon. We could get a repeat performance next month."

With billions of dollars injected into Britain's economy through fiscal and monetary measures, the FTSE 100 has recovered about 15% from its mid-March low but still stands more than 26% down from its January peak.

With the earnings season gathering pace, investors are on the lookout for any fresh signs of pain as business in Europe prepares to post its steepest profit decline since the financial crisis of 2008.

Analysts are forecasting a 22% drop in earnings for companies listed on the pan-European STOXX 600 index, according to Refinitiv data.

The world's largest listed miner, BHP Group, fell 6.4% after it warned that global steel production excluding China could drop sharply this year because of the pandemic.

Shares in fellow miners Anglo American and Glencore dropped about 6%, also hit by weak commodity prices, while Russian steelmaker Evraz Plc dropped 11.2% to the bottom of the FTSE 100.

John Lewis Partnership, which owns the Waitrose supermarket business, said sales at its department stores could decline by around 35% this year in a worst-case scenario because of the coronavirus crisis.

Primark-owner Associated British Foods declined 6.1% after it scrapped its interim dividend payout and said it could not provide a full-year earnings forecast.

The domestically oriented FTSE 250 midcap index fell 2.7% amid concerns Britain was set to be among the European countries hit worst by the virus.

Data released earlier showed British job growth slowed in March but unemployment benefit claims rose by 12,100 last month, far below the 172,500 forecast by economists.

By Devik Jain and Sruthi Shankar