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Brutal Monday sends FTSE to lowest since 2012

People pass electronic information boards at the London Stock Exchange in the City of London October 11, 2013. REUTERS/Stefan Wermuth

By Liisa Tuhkanen

LONDON (Reuters) - The FTSE 100 slumped to its lowest level in almost three years on Monday, with all stocks but one in the red and miners leading the slide on growing fears of a China-led global economic slowdown.

Alarm bells rang across world markets after a 9 percent dive in Chinese shares and a sharp drop in the dollar and major commodities panicked investors. The U.S. Dow Jones Industrial Average tumbled more than 1,000 points in early trading but bounced back, more than halving its losses by 1600 GMT.

Traders said investors were effectively being forced to sell to raise cash after widespread losses across markets and that the chain reaction had yet to reach its end.

"There is a snowball effect happening, with margin calls putting pressure on positions and creating forced sellers," said Mark Ward, head of execution trading at Sanlam Securities.

"Every order has been a sell today, across the board, so clearly people think we haven't hit the bottom yet."

However, other traders countered that stock markets were in "oversold" territory and that investors should bet on a rally.

The blue-chip FTSE 100 closed down 4.7 percent to 5,898.87 pts, its lowest level since late 2012.

This was a slightly less painful fall than the pan-European FTSEurofirst 300's 5 percent drop.

The FTSE 100, which marked its biggest weekly loss of the year on Friday, has now fallen for 10 sessions in a row, its longest continuous decline since 2003.

The mining sector led the fallers, dropping 9 percent to its lowest level since 2009 as fears about China's economic slowdown continued to bludgeon commodity prices. Glencore and Anglo American fell to fresh all-time lows.

Oil stocks Premier Oil and Tullow Oil fell 11 to 14 percent.

Small cap UTV Media was one of the few stocks to outperform, gaining almost 2 percent after saying it was in talks to sell its television assets.

(Editing by Toby Chopra/Ruth Pitchford)