Investors took scant comfort from Friday's backing of a US financial rescue to leave the FTSE 100 Index down almost 5 per cent or 240.5 points at 4739.

Japan's Nikkei 225 average was down more than 4 per cent at a four-year low while in Hong Kong the Hang Seng slipped 4 per cent.

Banks were under pressure after German mortgage lender Hypo Real Estate became the latest to receive state aid.

Analysts said the impact of the latest crisis crossed all sectors amid fears of slowing demand.

Halifax Bank of Scotland - soon to merge with Lloyds TSB - plunged 15 per cent in the sell-off, while Royal Bank of Scotland suffered a 10 per cent drop.

The market was also hit hard by hefty falls from heavily-weighted mining stocks after experts warned that the sector's earnings could almost halve this year.

Declines seen on the Footsie were mirrored elsewhere in Europe, with Germany's Dax 4 per cent worse off amid alarm over the country's rescue of its second biggest commercial property lender.

A raft of European Government moves to save banks over the weekend also saw fears mount over rapidly-spreading contagion from the credit crunch.

Iceland scrambled to secure a deal to rescue its banks and wider economy, while French bank BNP Paribas agreed to buy a majority stake in struggling bank Fortis, which is already part-nationalised.

Italy's second largest bank UniCredit was also reportedly launching a fund-raising scheme to survive.

Market analysts said trading was chaotic as panicky markets reacted to the weekend's developments.

Tom Hougaard, chief market strategist at City Index, said: "We have a seriously weak and fear-driven market at our hands.

"It is anyone's guess where we will end the day."
CMC Markets dealer Matt Buckland added that there was scepticism over the US bank bail out plans.
"The Fed's bail-out plan may have been passed on Friday, but so far there's been no real reaction in credit markets and because of this the natural assumption is going to be that the measures won't work, even if such a call is rather premature," he said.
America's Dow Jones Industrial Average closed down 1.5% on Friday, giving up initial gains seen ahead of the plan being passed.