News of a cash crisis at US investment bank Bear Stearns sent the FTSE 100 Index into reverse today in a dramatic end to the trading week.
The fresh evidence of the impact of the credit crunch sparked a sell-off in US markets as Bear Stearns said "market chatter" had hit liquidity and forced it to seek funding from JP Morgan Chase and the US Federal Reserve.
The London market followed Wall Street lower, unwinding gains made earlier in the day, to close 1% down, or 60.7 points, at 5631.7.
Banks littered the fallers' board on the renewed credit fears, with Halifax Bank of Scotland the worst performer. HBOS was down 6%, or 34p, to 528p, Barclays was off 17.75p at 433p, and Royal Bank of Scotland lost 8.5p to 333.75p as the sector dragged the index down.
Another leading faller was insurer Prudential, despite a positive outlook for its fast-growing Asian operation and forecast-beating annual profits of £2.54bn (€3.29bn).
The shares lost ground after a strong start after management played down speculation of stake-building by Chinese insurer Ping An. It eventually finished almost 5% lower, or 32p, at 622p.
The UK's biggest supermarkets also endured a difficult session after Goldman Sachs analysts downgraded the sector, pointing to the potential impact on trading caused by food price inflation and the squeeze on consumer spending.
Morrisons impressed investors with a 66% rise in profits yesterday, but analysts are already worried that sentiment will turn this year.
The supermarket was the leading faller for much of the day before being overtaken by the banks in the late sell-off and closed 11.25p down at 278.5p.
Tesco - downgraded to sell by Goldman - slipped 13.5p to 380.25p, while Sainsbury's was 13.25p lower at 326.25p.
There was some cheer for the Footsie however as bid speculation surrounding pharmaceutical firm Shire and advances for mining firms at the centre of takeover activity led to gains elsewhere.
Shire was the session's biggest riser, almost 5%, or 47p, better off at 990p as rumours suggested that US rival Pfizer was eyeing the group.
In the mining sector, rumours that Brazil's Vale has finally clinched a deal to buy a controlling stake in Xstrata buoyed its shares 17p to 3938p.
Kazakhmys - which has held informal talks over a merger with fellow Kazakh miner Eurasian Natural Resources - cheered 45p to 1790p.
Higher metals prices were also having an impact across the heavily-weighted sector, sending BHP Billiton and Rio Tinto up the risers board. The pair advanced 56p to 1590p and 120p to 5527p respectively.
International Power meanwhile benefited from a broker upgrade after Deutsche Bank analysts said the company was set to gain from tightening electricity markets. This pushed the company 11.25p higher to 393p.
The biggest Footsie risers were Shire up 47p at 990p, Tullow Oil ahead 24p at 653.5p, BHP Billiton up 56p at 1590p and International Power ahead 11.25p at 393p.
The biggest Footsie fallers were HBOS down 34p at 528p, Icap off 36p at 598p, Prudential down 32p at 622p and Barclays off 17.75p at 433p.