The London blue-chip index fell 7% in early trading to just over 5,800 points but ended the day 3.15% lower at 6,138.
New York and European markets all suffered even bigger falls, with the Dow Jones posting its biggest one-day slide in almost five years.
Sterling also plunged, falling more than 8% against the dollar and 6% against the euro.
Credit rating agency Moody's cut the UK's outlook from stable to negative on Friday night, saying the Brexit vote could result in weaker economic growth.
Wall Street fell sharply in late trading, with the Dow plunging more than 600 points, or 3.4%, to close at 17,400 points.
The S&P 500 fell 3.6% - the biggest daily slide in 10 months - while the Nasdaq slumped 4.1% to give the technology-focused index its worst day since 2011.
Jack Ablin, chief investment officer of BMO Private Bank, said: "This was really an event that caught most global investors flat-footed. We're going to see more days like today as the collective wisdom may prove wrong in others cases, too."
In London the FTSE 250, which mostly comprises companies that trade in the UK, shed 7.2% to close at 16,088 points.
Financial services group Aldermore was the biggest faller on the 250, down 32%, with house builder Crest Nicholson closing 26% lower.
House builders were also the three biggest fallers on the FTSE 100, with Taylor Wimpey suffering a 29% slide.
Liberum analyst Charlie Campbell said: "The outcome is bad for housebuilders' shares as the combination of slowing GDP, rising longer-term rates and political uncertainty is like Kryptonite for that group of shares."
However, the FTSE 100 index still ended the week higher than it started at 6,021 points.
Gold miner Randgold jumped 14%, while consumer-facing companies including GlaxoSmithKline, Unilever and Diageo all rose more than 3%.
The London market regained some poise after the Bank of England pledged to intervene to help shore up the markets.
Governor Mark Carney said the Bank was prepared to provide £250bn to support the markets, but added that "some market and economic volatility can be expected as this process unfolds".
'Bargain hunting'
The European Central Bank also said it was closely monitoring financial markets and was in close contact with other central banks.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said investors on the hunt for bargains helped the blue-chip index later in the day.
"A significant number of FTSE 100 stocks ended the day in positive territory, predominantly those companies with lots of overseas earnings, which stand to benefit from a weaker pound," he said. "Looking forward, we expect further choppiness in the days and weeks to come."
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Sterling fell more than 10% early on Friday to levels not seen since 1985, sinking as low as $1.3236 against the dollar, before regaining some ground to $1.3578.
John Higgins of Capital Economics said: "While this is still a lot lower than the $1.50 reached late on Thursday (UK time), it is not much different from the level that it reached a week earlier when the opinion polls first began to suggest that a Brexit was likely. It therefore seems disingenuous to suggest that sterling has collapsed in the wake of this outcome."
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UK government bond yields hit a new record low, with 10-year yields down more than 30 basis points to 1.018%, according to Reuters data.
Two-year yields fell more than 20 basis points to their lowest levels since mid-2013, at 0.233%.
European hit
Oil prices have also fallen sharply in the wake of the referendum outcome, with Brent crude down 4.9% to $48.41 a barrel - the biggest fall since February. US crude also fell 4.7% to $47.77 a barrel.
Gold jumped 5% to its highest level in more than three years at $1,322 an ounce.
The impact of the vote was also felt across the continent. The Dax in Frankfurt fell 6.8% - its worst day since 2008 - while Paris ended 8% lower, with falls of about 12% in both Milan and Madrid.
Capital Markets analyst Oliver Roth said the slide in the Dax "wasn't quite as bad as we had feared. At the opening it was down almost 10% but the markets stabilised somewhat ... However, there is great concern after this political disaster."
IAG, which owns British Airways and Iberia, said the result of the vote would hit its profits, sending shares down 22.5% in London.
"Following the outcome of the referendum, and given current market volatility, while IAG continues to expect a significant increase in operating profit this year, it no longer expects to generate an absolute operating profit increase similar to 2015," it said.
UK banks were also hit hard, with Lloyds closing 21% lower, Royal Bank of Scotland fell 18.8% and Barclays shed 17.7%.
Along with housebuilders, the banking sector is regarded to be most at risk from a weaker UK economy.
In France, Societe Generale plunged 20% and BNP Paribas fell 17.4%, while in Germany Deutsche Bank slumped 14.1% and Commerzbank slid 13%.
Meanwhile, shares in Santander - the eurozone's largest bank - fell almost 20% in Madrid.
David Tinsley at UBS said there would be "a significant rise in economic uncertainty" and that the Bank of England's Monetary Policy Committee (MPC) was expected to take action, including interest rate cuts and an extension of its quantitative easing programme.
"We expect the MPC will cut policy rates to zero and make further asset purchases, in the first instance of £50-75bn, not later than February 2017," he said.
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