Early FTSE losses worst since Black Monday

Panic spread across world markets today as the FTSE 100 Index crashed 10% on fears of a global recession.

More than 400 points was wiped off the FTSE 100 Index in devastating early session trading, taking the Footsie below the 4000 level.

The falls follow similarly dramatic overnight losses on Wall Street and in Asia.

Japan’s benchmark Nikkei 225 index closed almost 10% lower, down 881 points lower in its worst session since Black Monday in 1987, while the Dow Jones Industrial Average closed below 9000 for the first time since 2003.

The FTSE 100 Index recovered slightly later, down 359.5 points at 3953 after 20 minutes of trading.

The latest slump came despite co-ordinated interest rate cuts and this week’s efforts by the UK Government to bolster UK banks.

Matt Buckland, a trader at CMC Markets, said markets were reeling because of recession fears and the fact that the fire-fighting efforts of central banks worldwide had not resulted in any thawing of interbank lending.

He said: “US and European taxpayers have collectively tried to dig the financial sector out of one almighty hole but the response certainly hasn’t been as planned.”

It was the first time the FTSE 100 has been below the 4000 barrier since 2003.

Banking stocks were among the worst affected in the bloodbath, with the Government’s bail-out package failing to reassure panicked investors.

Halifax Bank of Scotland plunged 24% into the red, with its merger partner Lloyds TSB down 14% and Barclays also suffering a 14% fall.

Insurers were also taking a hammering after a brief respite yesterday, with falls compounded by news that Japanese life insurance firm Yamato Life Insurance Co had collapsed – the first financial firm in Japan to fail due to losses linked to the global financial crisis.

In London, Standard Life shares dropped 14%, Friends Provident fell 8% and Legal & General lost 10%.

The Bank of England’s surprise rate cut earlier this week failed to shield housebuilders from the stock market chaos.

Barratt Developments dropped 17% in the FTSE 250 Index.

Henk Potts, director of investment strategy at Barclays Stockbrokers, said: “I think it's very close to panic. We are drowning in a sea of red numbers and fundamentals have gone out the window.

“Investors are concerned about the exacerbation of the credit crunch and the gloomy forecasts for economic growth.

“The reality is that most investors have been spooked by the sheer pressure that the credit crunch is putting on the global economy.”

US president George Bush is set to make a statement later today in Washington in an attempt to assure Americans that every action is being taken to stabilise the financial system.

It follows a day after the US stock market tumbled more than 600 points.

Thursday’s sell-off on Wall Street took place one year to the day after the Dow closed at its record high of 14,164.

Since then, frozen credit markets, record levels of mortgage defaults and job losses and outright fear have knocked 39% from the value of the US index.

America’s treasury secretary Hank Paulson said yesterday he was “actively considering” injecting public money into financial institutions.

But the moves have so far failed to thaw frozen money markets, with the rate at which banks lend to each other for three months widening to 6.28% from 6.27%.

The declines on Wall Street came as a three-week ban on short-selling on almost 1,000 stocks was lifted.