The value of the City’s leading companies fell by more than £56bn on Thursday during waves of selling on stock markets in Asia, Europe and North America prompted by heightened fears of a trade war between the US and China.

The FTSE 100 index suffered its biggest percentage fall since the day after the EU referendum in June 2016 – closing almost 218 points lower at 6,704.

Only three of the 100 companies quoted in the FTSE 100 closed up on a day of heavy and coordinated selling on every major global stock market.

Wall Street suffered early losses following news of the detention of Meng Wanzhou, chief global finance officer for the Chinese telecoms company Huawei by Canadian authorities and the request by the US for her extradition to face reported cyber espionage and sanction-breaking charges.

But news that the Federal Reserve is considering slowing the pace of interest rate increases after a likely rise at their meeting in December cheered investors and a a large sell-off was avoided. President Donald Trump has been a vocal critic of the Fed’s rate rises, calling them “crazy” and arguing they could derail economic growth.

Reports of Meng’s arrest – and China’s demand for her release – led to falls of 2% in the Shanghai and Tokyo markets overnight and the sell-off spread to Europe, where all the main bourses saw losses in their main indices of more than 3%.

Frankfurt’s DAX index has now fallen by more than 20% since its peak – the official definition of a bear market – amid concerns that the country’s manufacturing exporters will be hard hit by an intensification of US-China protectionism.

The mood in the world’s financial markets has worsened dramatically since the beginning of the week, when a dinner between Trump and the Chinese premier, Xi Jinping, at the G20 summit in Buenos Aires appeared to call a truce in their tit-for-tat trade war.

Fears that the US would break the armistice led to an 800-point drop in New York’s Dow Jones industrial average on Tuesday and selling resumed after a day’s break on Wednesday for the funeral of former president George HW Bush. The Dow opened 400 points lower and at one point was down more than 700 points before rallying to close just 79 points, or 0.32%, down.

Andrew Milligan, head of global strategy at Aberdeen Standard, said: “I think I would put it [the sell-off] down to lack of joined-up communications from the US and China following the G20. Out of the jaws of victory, the White House snatched defeat.”

Broader measures of the US market also initially suffered heavy losses as investors ditched shares in favour of safer assets such as government bonds and gold, which rose to its highest level in five months. The S&P 500 was down by about 2% by Thursday lunchtime in New York – leaving it down on the year – but bounced back to lose just 0.15%.

Concerns that Trump will announce an increase from 10% to 25% in tariffs on $200bn of Chinese imports despite the Buenos Aires agreement was not the only factor pulling stock markets lower.

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The volatile mood was also affected by signs that the oil cartel Opec was having trouble at its meeting in Vienna putting together a deal to cut production in order to bolster the price of crude.

Oil companies feature heavily on stock markets and make lower profits when the price falls. The cost of a barrel of Brent crude – a bellwether of the market – fell by more than 4%.

Theresa May’s uphill struggle to get the House of Commons to agree her Brexit deal provided an additional cause of market anxiety in London. The 3.15% fall in the FTSE left the market at its lowest level in two years.