London stocks plunged lower on Thursday, recording their worst one-day decline in nearly two months, as strong retail sales fuelled fears of a sooner-than-expected interest rate rise.

The benchmark FTSE 100 index dropped 104.9 points or 1.58 percent to close at 6,483.34 points, its lowest level since a 3 percent drop on June 20.

Craig Erlam, market analyst at Alpari traders said: "At this rate, a year that started with talk of a triple dip recession could end with far better growth figures than even the most optimistic forecasts."

Sterling strengthened against the greenback bolstered by the British retail data, which jumped 1.1 percent in July from the level in June as a heatwave encouraged shopping. Consumers spent on food for barbecues, drinks and summer clothing.

The figures also suggested a likely boost from the birth of Prince George and British sporting success, including Andy Murray's Wimbledon victory, Lions rugby, and Ashes cricket.

Expectation of an imminent slowdown of the Federal Reserve's quantitative easing programme also sent global markets tumbling. The shift-in sentiment on the US had a knock-on effect for UK bond and equities markets

ETX Capital, market strategist, Ishaq Siddiqi said: "Investors feel taking profits may be the right strategy ahead of the start of tapering and will now be weary of buying dips, at least until the first round of tapering is out of the way. After that, the tone should switch from fearing the implications of tapering by the Fed to the encouraging growth we are seeing not only in the US, but the UK, euro zone."

In spite of overall poor sentiment on the index there were some big gainers.

Imperial Tobacco topped the leaderboard lifted 2.55 percent to 2209 pence after it said trading over the first nine months of the year had been in line with expectations. It was followed by vehicle insurer Admiral Group which added 0.95 per cent to 1279 pence

In a fairly quiet session for corporate news, cinema chain Cineworld was actively traded after reporting a 24% rise in half-year profits to ??16.5 million, driven by a 10% improvement in box office revenues. The firm is hopeful a strong film line up for the second half, including key titles: "Despicable Me 2" and "Monsters University" will keep the business on track.

At the bottom of the table was house builder Persimmon, the biggest blue-chip faller, dropping 7.35 per cent to 1097 pence as investors reacted to forecasts for the York-base construction firm's first half figures scheduled for next Tuesday. Travel agent TUI Travel was also at the bottom dropping 5.47 per cent to 362.7 pence.

Lloyds Banking Group was once again the most traded stock, with 178.61 million units changing hands.

On the currency markets, the pound firmed to 1.5572 dollars against the dollar at 5.03pm from 1.5474 dollars on Wednesday while sterling was a little weaker at 1.1740 euros against the single currency from 1.176 over the same period.