The FTSE 100 plunged below 5,000 this morning as the banking sector took a hammering sparked by the economic chaos which continues to engulf Greece.
While the Government unveiled initiatives to spark economic growth including ‘credit easing’ for small businesses, the state of the Eurozone’s finances continued to cast a shadow.
European shares extended losses into a third session, with banks lower on escalating worries a Greek default will spark a banking crisis in Europe.
Franco-Belgian Dexia fell 13.9 per cent after dropping more than ten per cent yesterday as fears rose that its stock was going into freefall over its exposure to Greek debt.
Goldman Sachs economists added top the bleak picture after lowering their global growth forecasts and now expect growth of 3.5 per cent in 2012, compared with 4.2 per cent previously.
In more bad news new figures form purchasing mangers showed that UK construction activity stagnated in September.
On London’s blue chip index RBS was the biggest faller, down more than seven per cent.
Barclays dropped by more than 4.5 per cent while Lloyds was off by 4.1 per cent.
Man Group lost five per cent as its price continued to be hit by a trading update which revealed that clients had pulled investments during a summer of market volatility.
Engineer Weir Group was down five per cent while GKN, in the same sector, saw its shares dented by more than four per cent.
The only significant risers on the blue chip index were Tesco, up 2.1 per cent and Morrisons, up just over one per cent.
Weakness in London was mirrored in Asian markets with the Nikkei closing down just over one per cent and the Nikkei down 3.8 per cent.
The MSCI world equity index fell one per cent, hitting its lowest since July 2010. It has fallen more than 18 per cent since January and more than 24 per cent since hitting a three-year high in March.