PRESS ASSOCIATION -- The rout of global financial stocks is continuing as panic-stricken European markets followed Wall Street downwards.
The FTSE 100 Index in London was down almost 4% or nearly 200 points as it fell below the 5000 barrier for the first time since July last year amid worsening fears that the global economy is descending into recession.
It was a similar story across Europe, as the DAX in Germany and the CAC40 in France were down 2% and 1% respectively.
There had been fears that London's benchmark index could open as much as 300 points down after Wall Street's Dow Jones Industrial Average fell by more than 5% on Monday and Asian markets also suffered heavy falls overnight.
London's leading share index made slight gains soon after it opened but these were surrendered amid negativity about the US economy and fears that debt-ridden Spain and Italy could need a bailout. It fell as low as 4866 at one point, with banks including Barclays among the heaviest fallers.
There are now worries that the stock market falls could help push the global economy into recession by destroying consumer confidence, prompting traders to dump more stocks and creating a vicious circle.
The FTSE 100 Index has now lost more than 1,000 points in the space of a month and on Monday posted four consecutive sessions of triple-digit losses for the first time in its 27-year history.
In Wall Street's first day of trading after Standard & Poor's downgrade of the US credit rating, the Dow Jones Industrial Average recorded its sixth-worst point decline in the last 112 years.
The fall of more than 600 points came despite attempts by President Barack Obama to reassure markets.
Michael McCarthy, chief strategist at Sydney-based stockbroker CMC Markets, said: "We're clearly in fear territory. The major driver here seems to be weakness in the US economy. There are fears that it's starting to stall and, if that's the case, the whole global growth scenario could fall over."