Art sale Moss-acre

Scrawled in lipstick, inscribed in blood by her former lover, Pete Doherty, the self-portrait by the model Kate Moss was expected to fetch up to £40,000 yesterday. In the end, the 2006 work – Who Needs Blood When You've Got Lipstick – did not make its reserve. Nor did many of the other contemporary works by famous names.

To the gathered dealers, there was no longer any scope for optimism. The sale, or lack of sales, was incontrovertible proof that the money-spinning contemporary art market has collapsed into what one shocked expert called "a bloodbath".

Moss's picture did later sell for £33,600 – just above its low estimate – after the dealers hit the phones to drum up business.

That did little to lift the gloom at the sale by the auctioneers Lyon & Turnbull in central London as even work by popular graffiti artist Banksy struggled. Another blood-inscribed piece by Doherty, as well as work by Sean Scully, Sam Taylor-Wood and a host of other artists also failed to reach their reserve prices.

The sale's outcome will send a chill through the art world, despite a headline-grabbing auction by Damien Hirst just two weeks ago, which netted the artist £111m at Sotheby's.

Many of yesterday's lots were withdrawn after failing to reach their reserve. Collectors who recently paid six-figure sums for Banksy's subversive and cheeky stencilled works will also be nervously looking over their shoulders after experts claimed his poor showing yesterday meant the bottom had fallen out of his market. 'Fungle Junk', a mural painted on the side of a van at the Lizard Festival in Cornwall in 1999, was expected to make £150,000 but was withdrawn when less than half that price was bid. The artist's refusal to authenticate the work – despite there being no doubt about its provenance – was probably to blame, Lyon & Turnbull's spokesman Philip Gregory said.

"This has been a very difficult sale," he added. "We had a lot of people who showed interest and a lot of people came to the exhibition. I think it's the state of the economy that's making people very wary about spending money."

He went on: "This is the middle-tier of the art market. It's very good stuff. None of the Banksys are fakes but they were authenticated by Vermin – an independent panel of experts – and perhaps the publicity surrounding that has put people off. It's a shame if that's the reason.

"I think the market will settle. It's a bad moment."

Other dealers were less forgiving. "He's just destroyed his own market," one said. "These works are cast iron Banksy. There is no doubt about it. Banksy's people object to Vermin and refuse to authenticate them themselves. Maybe he wanted to do it on purpose. But they are bad business people and very difficult and awkward to deal with."

"Every dealer I talk to is skint," added another. "They are all sitting on stuff they can't sell. There will always be the super rich who keep the top of the market afloat, but everywhere else it's a bloodbath."

There was a glimmer of light, however. A controversial fire-sale of work donated by patrons of London's Colony Room, a Soho club frequented by artists including Tracey Emin, Gavin Turk and Sir Peter Blake, saw a mural by the artist Michael Andrews, who died in 1995, sell for £38,600 – one of the few lots to exceed its high estimate on the day.

It was bought by a representative of Andrews' estate in the hope it can be placed in a museum.

"They bought it because it's a piece of London's cultural history that shouldn't be lost," Mr Gregory said.