A fragile FTSE 100 Index had been in positive territory for much of the session, but followed the Dow Jones Industrial Average lower as US traders were spooked by a gloomy update from General Motors.

The Footsie eventually closed more than one per cent, or 52.89 points, down at 4313.80. This was its lowest close since August 2004 after a five per cent tumble on Wednesday.

The losses came despite a bright start to trading given by gains in Asian markets. But sentiment weakened later as the International Monetary Fund's chief warned the world was on the "cusp" of recession.

The economic woes also continued in Iceland, as more banking turmoil saw trading on the country's stock market suspended until Monday.

In London, HBoS and Royal Bank of Scotland continued to recover lost ground with miners also enjoying some gains.

HBoS was the top Footsie riser, up 31 per cent, or 361/2p to 1531/2p, with its proposed merger partner Lloyds TSB up 13/4p to 2113/4p.

NatWest owner RBS cheered 51/4p to 96p, but Barclays – which fell heavily on Wednesday – was yesterday's leading Footsie faller.

Barclays shed 361/2p to 2413/4p, or 13 per cent on speculation it will seek to tap shareholders rather than the Government to strengthen its balance sheet.

All the banks will be able to tap the Government for billions of pounds of extra capital if they need it under the massive bail-out scheme that was announced on Wednesday.

HSBC was named as one of the initial eight banks eligible to take part in the scheme but has no plans to do so, and later announced plans to pump £750m of its own cash into its UK subsidiary. Shares fell 181/4p to 860p.

Elsewhere in the financial sector, Norwich Union owner Aviva gained after it said its surplus regulatory capital rose in the third quarter despite the fall in stock markets. Shares lifted 241/4p to 434p, as Aviva also said increased hedging had reinforced its buffer against further falls.

Sainsbury's also put back some of Wednesday's losses after tycoon Robert Tchenguiz's forced sale of a 10 per cent stake in the company. Broker upgrades after a trading update also helped shares rise 1/4p to 268p.

Miners offered the wider market some support, with Eurasian Natural Resources leading the way, ahead 71p at 521p.

Elsewhere, FTSE 250 Index retailer WH Smith was up eight per cent after a 15 per cent rise in underlying profits was accompanied by a resilient note on current trading. Shares rose 25p to 345p.

But shares in convenience food chain Greggs were 217p lower at 3209p after it cut full-year profit forecasts by £3m.

The Footsie's four biggest risers were HBoS, up 361/2p to 1531/2p, Cairn Energy lifted 248p to 1609p, Eurasian Natural Resources added 71p to 521p and Antofagasta, closing 301/2p higher at 332p.

The four biggest Footsie fallers were Barclays, down 361/2p to 2413/4p, National Grid fell 55p to 610p, United Utilities slipped 47p to 577p, and International Power which fell 201/4p to 273p.