The blue-chip index fell 238.53 points to 4366.69 – its lowest level since August 2004 – as fears the economy is heading for a major recession outweighed any boost from policymakers.

Just eight Footsie stocks ended up in the black after see-saw swings, with two banks HBoS and Royal Bank of Scotland better off.

HBoS shares added 23p to 117p as investors speculated that its takeover by Lloyds TSB will survive following the initiative.

Royal Bank of Scotland, which plunged 40 per cent on Tuesday, hardly made progress, rising just 0.7p to 90.7p after being much higher earlier in the day.

In rollercoaster trading as investors digested the rescue package, rival Barclays ended up falling 63/4p to 2781/4p, with Lloyds TSB down by 7 per cent, or 151/2p to 210p.

Other banks fared poorly amid uncertainty about their level of exposure to the Government's proposals, in particular any dilution threat to existing stakes and possible curbs on future dividend payments.

Standard Chartered, which has no plans to issue any new capital, fell 151p to 1160p while HSBC was off 223/4p at 8781/4p.

In spite of the rate cut, J Sainsbury was the Footsie's biggest casualty, off 47p at 2673/4p. The fall came amid speculation – later confirmed – that investor Robert Tchenguiz had offloaded his 10 per cent stake in the group. Analysts also feared its like-for-like sales jump of 4.3 per cent for the 16 weeks to October 4, which was slightly better than market expectations, could be hard to beat.

Sentiment was not helped by a forecast for negative growth next year for the UK economy from the IMF, and growth warnings from the Bank of England in spite of the rate cut.

Marks & Spencer had enjoyed some gains but succumbed to the market blues, going on to lose 9p to 2201/2p.

In other consumer areas, Thomson holidays owner TUI Travel managed to rise 81/4p to 212p, with Premier Inn firm Whitbread adding 291/2p to 9861/2p.

Hopes for a revival in the house market saw housebuilders featuring high up the FTSE 250 Index gainer's board. Bellway was 563/4p higher at 540p, while Charles Church owner Persimmon leapt 28p to 4003/4p. Debt-laden Barratt was not so fortunate, slipping 11/4p to 913/4p.

Miners were under severe selling pressure amid a downturn in commodity prices. Vedanta Resources was a major Footsie faller, down by 141p to stand at 864p. Oil falling to 12-month lows of about $86 a barrel weighed down energy firms like Tullow Oil, which closed 63p lower to 4821/2p.

The Footsie's four biggest risers were HBoS, up 23p to 117p, TUI Travel lifted 81/4p to 212p, Whitbread advanced 291/2p to 8961/2p and ICAP which closed 8p higher at 336p.

The four biggest fallers were Sainsbury's, down 47p to 2673/4p, Vedanta Resources, slipped 141p to 864p, London Stock Exchange fell by 102p to 7121/2p, and Petrofac which ended the day 561/2p lower at 424p.