World markets were shaken today after US plans to bail out the beleaguered car industry stalled in the Senate.
The FTSE 100 Index was down more than 2% – or 105.5 points at 4283 – as investors also reacted to further trading woes at Halifax Bank of Scotland.
Details of the company’s spiralling bad debts in retail and corporate lending caused shares across the banking sector to fall.
Royal Bank of Scotland, which is 58% owned by the Government, was the heaviest faller, with a drop of more than 11%. HBOS was down by 10%, while merger partner Lloyds TSB slumped 9%.
The collapse of the US bail-out plans was reflected in Asian markets, with the Nikkei and Hang Seng both off by more than 5%.
Cross-party talks on the rescue broke down over Republican demands that the union agree to steep wage cuts by 2009 to bring their pay into line with Japanese car makers.