Official figures revealing a worse-than-expected 0.5 per cent third quarter fall in UK economic growth – the first negative reading in 16 years – compounded an already poor start to trading, with the FTSE 100 Index down 9 per cent at one stage.

Devastating opening falls on Wall Street added to the sell-off, although the Footsie later recovered some ground to close 204.47 points down – a fall of 5 per cent – to 3883.36.

The decline was mirrored across Europe, with the Cac 40 in France finishing 4 per cent lower and the Dax in Germany down 5 per cent.

Investors in the US also reacted to widespread fears the global downturn would be deeper than first feared, with a wave of profit warnings adding to the negative sentiment.

The Dow Jones dropped almost 500 points on opening, later standing 3 per cent down.

In London, GDP figures showing the UK's worst performance in almost 18 years added to the pain for the Footsie.

Signs of trouble in emerging economies such as South Korea and Argentina meant banking giants HSBC and Standard Chartered led the latest round of banking sell-offs.

Both have been relatively unscathed by the turmoil so far, but suffered because of their exposure to emerging markets in Asia. HSBC endured a drop of 14 per cent, or 109p, to 696p while Standard Chartered slumped 142p to end the day at 758p.

Other banking stocks were down on growth fears, with
Barclays off 261/4p to 192p and HBoS down 127/8p to 597/8p – putting it at the top of the blue chip fallers' board.

Lloyds TSB set out the timetable for its takeover of HBoS, but the hefty fall for the Halifax owner could reinforce fears that it may walk away from the deal.

Eurasian Natural Resources and Xstrata were among the other major casualties in an otherwise positive session for miners. ENR declined 641/2p to 329p while Xstrata fell 621/2p to 7771/2p.

BP and Royal Dutch Shell were also down – 25p at 440p and 72p at 1427p respectively – as slowdown fears countered any oil price benefit from Opec's decision to cut production.

The latest stock market collapse also reignited worries about the solvency capital levels held by insurers.

Friends Provident led declines in the sector, down 111/8p to 54p, while Prudential was off 13 per cent, or 431/2p, to stand at 2861/2p after the Financial Times said the insurer was looking at parts of America's AIG beyond its Asian operations.

National Express was another faller, down 5 per cent, or 321/2p, to 5771/2p, after it said the travel industry was not immune to an economic slowdown, despite further evidence of growth in its most recent trading period.

The biggest Footsie risers were BHP Billiton up 451/2p to 8681/2p, Rio Tinto ahead 37p to 2277p, WPP Group up 51/4p to 3233/4p and Reckitt Benckiser up 41p to 2598p.

The biggest Footsie fallers were HBoS and Friends Provident.