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Stock markets worldwide were gripped by fear as London’s FTSE 100 Index endured its worst week since the Black Monday crash of 1987.

Recession panic and concerns over fragile banks sent investors stampeding for the exits as the Footsie tumbled 8.9% – surpassing even Monday’s record sell-off.

The Footsie has plummeted 21% over the week – wiping more than £250 / $425 billion off the value of top-flight stocks in the process.

“another ugly day”

The index eventually finished below the 4,000 mark at 3932.1 – its lowest close for more than five years.

The 21% fall comes close to the 22% slide seen by London’s leading shares in the aftermath of Black Monday.

Following heavy overnight declines in Asia, screens turned red in the City as the London market approached falls of 10% at one stage. A dire start to US trading offered no respite.

The Dow Jones Industrial Average, which fell more than 7% on Thursday, tumbled as much as 8% during a volatile early session.

City watchers were confounded by the falls ahead of crisis talks among the G7 finance ministers this weekend. David Jones, chief market strategist at IG Index, called it “another ugly day”. “There is a real sense of despair… it is difficult to see what can be done to effect a handbrake turn in sentiment in the short term,” he said.

Across Europe, France’s CAC 40 and Germany’s Dax were also showing losses of 7% and 8% respectively amid the carnage.

In London, banking stocks were among the biggest victims of the turmoil as speculation mounted over the billions they may need to strengthen their finances. Royal Bank of Scotland lost 25% and is down a mammoth 61% this week, and Halifax Bank of Scotland fell 19%, and 37% over the week. Barclays tumbled 14%, making a 42% slump in the past seven days.

Source: Press Association

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Dow slids below 10,000, watched by trader Arthur Cashin wearing a 'Dow 10,000' hat that was given out when the index first hit 10,000 on March 29, 1999

Dow slids below 10,000, watched by trader Arthur Cashin wearing a 'Dow 10,000' hat that was given out when the index first hit 10,000 on March 29, 1999

US stock markets slumped sharply with the Dow Jones falling through the psychologically important 10,000 mark for the first time since October 2004 amid fears that the fallout from the credit crisis will push the country deep into recession.

The Dow Jones fell 569.8 to 9755.5, with the S&P 500 off 64.2 at 1035.0 despite moves by the Federal Reserve to instill confidence in the financial system through capital injections.

Nearly a quarter of the stocks on the New York Stock Exchange hit new lows within an hour of the opening of the markets, with every stock in the Dow Jones index down on the day.

The S&P 500 was flat to its trading level 10 years’ ago, leading US commentators to speak of a “lost decade” in equity markets.

The stock market slumps followed similar moves in Europe where the FTSE 100 was on course for its biggest one-day fall in more than 20 years.

The index of leading shares was down almost 9pc at one stage – the biggest decline since the aftermath of Black Monday in October 1987.

A host of the UK’s biggest banks were rocked by turmoil across the European banking sector, with Royal Bank of Scotland falling 22pc at one stage. Mining stocks were also hit, dragged down by fears of falling demand in the face of a growing global slowdown.

Germany’s Dax was off 7.4pc while the Cac-40 in France fell 8.2pc and Italy’s benchmark S&P/Mib fell 9.17pc – its lowest level since the index was established in September 2004.

Traders in the US said the only way to halt the decline, even temporarily, was for central banks around the globe to push through co-ordinated interest rate cuts.

“There is no support to halt share declines. No one is buying,” said one trader at a big US bank. “We were told to reduce our risk and to stay out of the markets. There is too much irrational behaviour out there.”

The stock market declines will heighten fears over the US government’s power to prop up markets despite its success in pushing through a $700bn (£403bn) bailout of the banking system on Friday.

The Federal Reserve acted to shore up confidence in the banking sector today and free up the credit markets by doubling the amount of money it makes available under its Term Auction Facility to $900bn.

Banks will be able to draw down funds from the facility and maintain liquidity in the face of an interbank lending market that has all but ceased to function.

In Asia, Japan’s Nikkei index lost 4.2pc, South Korea’s Kospi slipped 4.3pc and Hong Kong’s Hang Seng fell 5pc. China’s CSI 300 Index fell 5.1pc, as trading resumed after a one-week holiday.

Source: Telegraph