The blue-chip index shed 202.87 points to 4005.68 and briefly dipped below the 4,000 mark for the first time in a month as heavy falls on Wall Street also hit sentiment in London.

Traders in the US had been braced for a tough opening after the biggest monthly fall in inflation since records began provoked fears of deflation, while the struggling US housing market continues to shrink.

CMC Markets dealer David Fineberg said: "The near term outlook is bleak and there's little to provide any sustainable support just yet."

The mining sector was badly hit by recession fears, with Kazakhmys down 22 per cent, or 42p, to 193p, the Footsie's leading casualty. Vedanta Resources followed close behind, down 761/2p to 438p.

Banks were also suffering after JP Morgan Securities cut share price targets on several UK banks, including Barclays from 210p to 150p.

Barclays was already under pressure after attempts to smooth the passage for its Middle Eastern bail-out plan failed to appease shareholder lobby groups. Shares were down 197/8p at 1295/8p during another turbulent session for the sector.

HSBC fell 641/2p to 6411/2p, but HBoS gained 11/4p to 641/4p on the day Lloyds TSB shareholders were expected to back the takeover of the ailing bank. Lloyds however was also on the back foot, down 123/4p to stand at 1181/2p.

Elsewhere, Marks & Spencer shares fell 6 per cent after it emerged the retailer planned to hold a one-day 20 per cent off sale today. Further pressure on the stock, which declined 111/4p to 200p, came after Seymour Pierce cut its full-year profits forecast on M&S.

Citigroup was another City firm to express concern over M&S, as part of a wider downgrade of the sector. Currys owner DSG International was the biggest casualty of Citi's review as shares tumbled 45 per cent, or 5p, to 11p after touching record lows below 10p earlier.

Other fallers in the retail sector included Mothercare, which dropped 211/2p to 2681/2p ahead of interim results today. Sports World owner Sports Direct International slid 43/4p to 321/4p and Debenhams fell 41/2p to 233/4p.

The biggest top flight gain of the session came from credit checking firm Experian – up 7 per cent, or 223/4p, to 3291/4p – after it posted first half results slightly ahead of market expectations.

But elsewhere insulation firm SIG dropped 14 per cent after it warned profits were likely to be towards the bottom end of expectations. SIG, which also said it planned to cut 900 jobs, was down 23p to 158p.

Retailer Woolworths slid another 11/4p to 23/8p after it confirmed it was in talks over the possible sale of its retail arm. Speculation centred on a possible £1 proposal from restructuring firm Hilco.

The biggest Footsie risers were Experian, ICAP ahead 141/4p to 2441/4p and Man Group lifted 81/2p to 2161/4p.