FTSE down 5%

A further loss of confidence in the banking sector dragged the FTSE 100 Index down 5% today in a grim day for stock markets worldwide.

Royal Bank of Scotland and Barclays felt the full force of the sell-off as the Government’s latest package of loan guarantees did little to allay market concerns that the beleaguered sector may have to raise fresh capital.

The FTSE closed 218.5 points down at 4180.6, with stock markets across Europe and the US also under pressure.

America’s Dow Jones Industrial Average fell more than 3% in early trade.

In London, Royal Bank of Scotland – which is 58% owned by the taxpayer - plunged 18% – losing 9.4p to 41.7p – after it announced the sale of its 4.26% equity stake in Bank of China as part of an ongoing review of the group.

Reports that HSBC and Barclays – which snubbed the Government’s bank bail out last year – may have to raise more cash spooked investors ahead of the upcoming bank reporting season.

Barclays shares plummeted more than 14% – shedding 23.8p to 142.1p.

The bank has also cut another 2,100 roles in its retail business on top of the 2,000 investment banking jobs ditched yesterday.

HSBC followed Barclays down with a decline of more than 8%, down 51.25p to 588.75p as broker Morgan Stanley cautioned the bank could have to raise further capital and cut its dividend in half.

Markets were also hit by US data showing that retail sales fell for a record six months in a row during December, down 2.7% – far worse than expected as US consumers flagged in the face of a deepening recession.

Other stocks suffering in London today include FirstGroup, down 15% or 62.5p to 358.75p after it revealed poor trading at its US Greyhound bus division over the Thanksgiving and Christmas breaks.

Better news from blue chip engineering and energy services saw Amec earn its place on a shortened risers board, up 34.5p, to 572p.

The firm said full-year profits should come in at the top of market expectations thanks to strong demand in 2008.

Supermarkets had lent some support to the FTSE earlier in the session, with Tesco initially extending yesterday’s rise after Christmas sales came in line with market forecasts, despite weaker growth.

But shares later fell back, down 5p at 346.6p.

There was little cheer elsewhere, although tour operator TUI Travel rose 0.25p to 235.25p as oil prices once again plunged, to less than 36 US dollars a barrel.