All major European stock markets dived after London's transport system was attacked by seven explosions, killing 33 people.
The London market fell sharply after bomb blasts hit London's transport system, with the FTSE 100 plunged 200 points as the news filtered through, but the market proved resilient enough to bounce back, closing 71.3 lower at 5,158.3.
Insurance, leisure and tourism stocks bore the brunt of the sell-off.
BA shares fell more than 4 percent, First Choice fell 2.8 percent while insurer Prudential dropped 2.1 percent.
In Frankfurt, German shares sank on news of terrorist bomb blasts in London, with the benchmark DAX index was quoted down 85. 31 points, or 1.85 percent, at 4,530.18.
Shares in Munich Re, the world's largest reinsurer, fell 2.1 percent, while insurer Allianz fell 2.6 percent. Airline Lufthansa also headed south.
In Paris, the benchmark CAC index lost 59.33 points to close at 4,220.6, with Insurer Axa fell and aerospace giant EADS was marked lower in response to the attacks in London.
And construction firm Bouygues fell a day after Paris lost out to London in its bid to host the 2012 Olympic Games.
In the currency market, the British sterling was once sank to a 19-month low against the dollar and dropped 1 percent to a six- week low against the euro.
The British pound closed at US$1.7586 to a pound, while the US dollar rose against the Japanese yen, ending at US$1 to 112.14 from previously 111.71.
The greenback lost some ground against the euro ending at 1. 1929 from 1.1929.