London shares, which had slipped more than 7% at one point, ended 2.7% down.
Closed:
London: FTSE 100
-2.7%
Tokyo: Nikkei 225
- 2.35%
Hong Kong: Hang Seng
-4.1%
And news from the UK government of plans to ensure airlines keep flying, after rocketing insurance costs threatened schedules, also offered late support.
The closing level of 4,433.7 was 123.2 points lower than the previous Thursday's close.
'Safe havens'
The earlier slump saw investors deserting shares in favour of government bonds and other traditional "safe haven" assets amid growing uncertainty about prospects for company profits and the world economy.
The decline of 337 points recorded in lunchtime trading took the FTSE to levels last seen in January 1997.
With US stocks proving more resilient than many observers had feared, amid uncertainty over US reprisals for last week's terrorist attacks, UK share mounted an afternoon rally.
Indiscriminate
But the gloomy mood persisted despite the rally, as investors awaited possible military strikes in the coming days in retaliation for the terrorist attacks on the US last week.
"People just do not want it," David Buik of Cantor Index told BBC News 24.
"They are just selling shares indiscriminately."
The imprecise nature of the "war on terrorism" declared by US President George W Bush will continue to weigh on stocks, even though many shares seemed oversold at Friday's levels, dealers said.
The risk of a sustained boost to oil prices, not to mention the burden on aviation, insurance, banking and other sectors, will continue to play havoc with markets around the world, they warned.
Unlikely gainer
Despite the concerns, there were gainers by the end of the day in London.
British Airways, for one, came back from double-digit percentage falls to end 6.3% higher.
The stock has, nonetheless, lost more than one third of its value since close of trading on 10 September.
Observers credited the rise to the prospect of government help to cover steeply rising insurance premiums since last week's attacks.
But technology stocks slid, with Telewest down more than 16%.
Marconi's closing price of 20p gave the firm, once a multi-billion pound tech powerhouse, a market value of little more than £600m.
The firm's shares at one point hit 19p on Friday, their last day of trading in the FTSE 100 before the reshuffle announced last week takes affect.
Assets under pressure
Another factor weighing on share prices was a concern that insurers would need to rebalance assets following payouts stemming from the attacks on the US.
Insurance companies and pension funds are required by law to meet minimum funding requirements - in other words, to keep a certain value of assets at any one time to ensure that beneficiaries will actually get their money.
In former years, much of this was held in government bonds - known as "gilts" in the UK - and other securities seen as safe.
But the massive returns from shares during the long boom of the 1990s meant many firms moved much of their asset holdings into the equity markets.
That has partially reversed in the past year as stock markets have gone into reverse.
'A mockery'
But the speed with which markets have dived around the world since the attacks on the US on 11 September means that pension and insurance groups are having to rush to reshape their portfolios.
"The minimum funding requirement is designed to cope with slides of up to 25% in a single year," one dealer said.
"The falls of the last 10 days make a mockery of that figure.
"These companies have 60-70% of their holdings in shares, and they are now having to sell up at whatever price they can get and pile into bonds at inflated rates."
Equally problematic is the unit trust and capital management sector, where a raft of companies are in deep trouble.
And company profitability will suffer as a result, as companies' pension contributions are likely to have to rise sharply to cope with the huge decline in the value of their pension funds.