The FTSE 100 Index closed at its lowest level for more than three years yesterday after another torrid session for UK blue chips.
The fall-out from Lehman Brothers' bankruptcy saw the Footsie plunge 178.6 points to 5025.6 – a fall of 3.4 per cent and its lowest close since June 2005.
The blue-chip share index had plunged below 5,000 at one stage in a second day of heavy decl
ines, having fallen by more than 200 points on Monday.
America's Dow Jones Industrial Average also endured volatile trading, touching positive territory briefly on hopes of a Government aid package for troubled insurance giant American International Group (AIG) and a possible rate cut from the US Fed Reserve later in the session.
In London, Halifax Bank of Scotland was suffering amid funding concerns, down by 22 per cent, or 501/2p, to 182p.
HBOS said it is "very confident" about its funding position though, adding that it has £258bn of retail deposits.
The group's efforts to reassure investors saw it pull back from an earlier decline of nearly 40 per cent.
Royal Bank of Scotland was off 213/8p to 1891/8p, while Barclays dipped 8p lower to 308p after announcing it was in talks to buy some of Lehman's non-toxic assets.
Sentiment was also hit by Bank of England Governor Mervyn King's letter to Chancellor Alistair Darling, which was issued after inflation hit 4.7 per cent in August.
Analysts said the tone of the letter suggested interest rates may not be coming down as soon as some had hoped.
Insurers also extended declines, with Legal & General down 35/8p to 881/2p and Norwich Union parent Aviva off 291/2p to 460p, in spite of assurances over its exposure to Lehman. But Lloyds TSB was a rare riser in the financial sector, up 2 per cent, or 6p, to 2793/4p on vague market rumours of stake-building by a Chinese bank.
There was also some buying interest elsewhere, with defensive stocks such as Centrica up 10p to 332p and National Grid ahead 41/2p to 7221/2p.
Oil stocks were on the back foot, however, after the cost of crude fell below 91 US dollars a barrel at one point yesterday. BP shed 3 per cent, or 151/2p, to 476p, while Royal Dutch Shell lost 5 per cent, off 84p, to 1564p.
In the second tier, recruitment firm Michael Page International shed 22 per cent, or 713/4p, to 250p, after Adecco ended its recent takeover interest in the group.
But fellow second tier firm Alliance & Leicester saw its takeover by Spain's Santander take a step closer after shareholders voted in support of the deal at yesterday's extraordinary general meeting. A&L – ahead a penny to 2773/4p – is now set to see the £1.3bn deal complete next month, when it will be merged with Santander's existing business Abbey.
The biggest risers were the London Stock Exchange, up 24p to 760p, Enterprise Inns, ahead 61/2p to 215p, Centrica and Lloyds TSB.
The biggest fallers were Hammerson, down 261/2p to 9131/2p, HBoS, John Wood Group, down 463/4p to 3423/4p, and RBS.
