The Footsie fell 381.74 points to 3932.06, the index's lowest level since May 2003.

It follows plunges of 8 per cent on Monday, 5 per cent on Tuesday and 1 per cent on Thursday – and means the index has dived 21 per cent this week alone, wiping £250bn off the market values of Britain's biggest firms.

Friday's bloodbath came amid mounting fears over a deep economic downturn and further uncertainty for the battered banking sector. More falls for New York's Dow Jones Industrial Average following Thursday's 7.3 per cent slump also aggravated the trading woes in London.

Banks dominated the Footsie's numerous fallers amid few signs that the Government's huge bail-out announced on Wednesday was having any impact.

Royal Bank of Scotland plunged 25 per cent, or 241/4p to 713/4p, with Halifax Bank of Scotland not far behind, down by 19 per cent, or 291/4p to 1241/4p.

Barclays was 14 per cent lower, or 341/4p to 2071/2p, as it said it was considering a number of capital raising options in light of the Government's £25bn industry-wide recapitalisation offer.

A number of other financial stocks were lower amid the recession fears.

Insurance and savings giants Legal & General and Prudential were big casualties amid fears for the sector's solvency position. The shares were off 141/4p to 743/4p and 441/4p to 3781/4p respectively.

Car insurance group Admiral was among the fallers, despite reporting strong trading for the quarter to the end of September.

Shares were down 2 per cent, or 191/2p, to 880p, with analysts noting continued pressure on margins and growth at the company's Confused.com comparison website.

Meanwhile, the prospect of weaker economic growth meant miners were under heavy selling pressure, with Rio Tinto down 326p at 2424p and Xstrata off 164p to 1223p. Among other heavy fallers, BT Group slid 201/8p to 1331/4p.

Retailers were also joining the slide, with Marks & Spencer down 83/4p to 218p, fashion chain Next 371/2p lower at 9471/2p and B&Q owner Kingfisher 91/2p cheaper
at 1201/8p.

Even with oil prices falling towards the 80 dollar mark, fuel-hungry British Airways was a big loser, down 12 per cent, or 151/8p to 1097/8p, as investors fretted over the company's trading outlook.

Just one blue chip was in positive territory, media group Thomson Reuters which edged up a penny to 1101p.

The picture was a bit better in the FTSE 250 Index, with heavily-sold broadcaster ITV adding 11/2p to 371/2p amid speculation the current woes could lead to mergers within the industry.

Britain's biggest pub chain Punch Taverns also added 1/4p to 1613/4p after rumours that the collapse of Icelandic Kaupthing had removed a short-seller from the market.

But housebuilder Barratt Developments was among the firms in the red, down by 81/2p to 831/4p.