FTSE plummets over US credit fears

Billions were wiped off the FTSE 100 over continued fears about banks' exposure to losses in the collapsing US sub-prime mortgage market.

The FTSE 100 Index closed 6038.3, down 232.9 points having lost 3.7 per cent of its value during the day - equivalent to around £56 billion and its heaviest percentage fall since March 2003.

The concerns have spread to the wider credit markets as banks take a more cautious approach to risk amid rising interest rates.

The US Federal Reserve was forced to intervene twice in one day, while the European Central Bank and the Bank of Japan among other central banks injected liquidity into banking systems on Friday.

Experts have warned that current turmoil in global stock markets could have implications for UK consumers as lenders become more cautious.

Prime Minister Gordon Brown sought to calm the market, saying: "I think the important message to be sent is we have done everything in our power to maintain the stability of the British economy."

The FTSE dived during the morning after the European Central Bank pumped emergency cash into money markets and French bank BNP Paribas froze three funds. It recovered some ground after the Dow opened but went back into freefall.

Across the pond, the Fed injected $19 billion (£4.45bn) into the US banking system to calm markets before the Dow Jones Industrial Average opened but the index immediately shed 100 points on opening having lost almost 400 points overnight.

Just before 3pm UK time, the Fed said it was adding $16 billion (£7.45bn) in liquidity.

By the time the FTSE closed, the Dow Jones was down 105.52 points, or 0.80 per cent, at 13,165.16 having earlier fallen more than 200 points to a session low at 13,057.86.

Financial stocks dominated the fallers board in London, with Barclays falling 6 per cent, or 43.5p to 638p, Asian-facing bank Standard Chartered off 90p to 1570p and Royal Bank of Scotland 22.5p lower at 562p.

Mortgage lender Northern Rock topped the FTSE fallers, off almost 10 per cent, or 75.5p, at 713.5p. The firm was closely followed by fund manager Man Group after it suspended the listing of two hedge funds on the US stock market yesterday. The group fell 9 per cent, or 47.75p to 479.25p.

The crisis overshadowed half-year results from financial services group Old Mutual, which was off 9.5p to 151.9p after posting a 12 per cent drop in operating profits.

The strength of sterling against the rand and US dollar caused the profits decline, with chief executive Jim Sutcliffe insisting the company's growth prospects would not be derailed by the current market volatility.

The FTSE 250 Index was down nearly 3 per cent, although software retailer Game Group recovered a near 13 per cent fall after the Office of Fair Trading's decision to refer its Gamestation acquisition to the Competition Commission to close unchanged at 171p.

But other second-tier stocks fared much worse, with investment firm Rathbone Brothers suffering a 12 per cent fall to close 158p lower at 1157p.

Other firms caught by the market sell-off included Rightmove, which fell 7 per cent or 40.5p to 522p, and Go-Ahead, which dipped 127p to 2499p. Rivals Stagecoach and National Express were down 6.5p at 193.5p and 46p at 1059p respectively.

The FTSE risers were Carnival, up 12p to 2244p, Associated British Foods up 2p to 844p, Tate & Lyle ahead 1p to 549p and Kingfisher up 0.25p to 215p.

The leading FTSE fallers were Northern Rock, down 75.5p to 713.5p, Man Group off 47.75p to 479.25p, International Power down 34.5p to 405p, and Lonmin off 236p to 3036p.

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