£31bn wiped off blue chip shares

More than £31 billion was wiped off London's biggest companies today as investors rushed for the exits on renewed fears of a lengthy global recession.

The FTSE 100 Index sank 3.3 per cent to 3,875 - its lowest close since the depths of the financial crisis in mid-October - as markets plunged around the world.

Wall Street's Dow Jones Industrial Average, which shed 5 per cent yesterday, took further losses as US employment claimants soared to a 16-year high.

This followed heavy falls in Asian markets, with Hong Kong's Hang Seng down 4 per cent and Japan's Nikkei 225 falling almost 7 per cent.

The demand worries in a stuttering global economy sent metal prices lower, while Brent crude sank below 50 dollars a barrel to a three-and-a-half year low at one point.

The slump came amid lowered projections for US economic activity next year from the Federal Reserve and worries over the fate of America's Big Three car makers, which are pressing for emergency loans from Washington.

Anthony Grech, IG Index's market research analyst, said: "There is still a real sense of gloom about the financial markets based on rising unemployment and falling profits.

"Data from America is continuing to paint a perilous outlook for the US economy in the long term."

The uncertainty facing companies around the world was evident after US consumer prices fell 1 per cent last month, the largest amount in the past 61 years.

Mining stocks and insurers led the sell-off in London as investors worried about the impact of slower economic activity.

Insurers were under pressure as the latest share price falls raised concerns that their capital strength could be eroded.

Leading firms reassured on the matter during recent trading updates, but shares still fell across the board today, with Aviva, Legal & General and Prudential all recording double digit losses. Aviva was the worst casualty as shares fell 20 per cent.

Among the banks, Barclays suffered losses after Societe Generale lowered its price target on the stock and said it remained concerned about the cost of Barclays' Middle Eastern capital raising.

But the banks taking part in the Government's £37 billion recapitalisation scheme all registered gains on the day that Royal Bank of Scotland shareholders overwhelmingly backed a £20 billion bail-out.

Another rare bright spot came from the retail sector after figures showed a better-than-expected 0.1 per cent decline in official sales for October. B&Q owner Kingfisher rose 3 per cent, Marks & Spencer lifted 3 per cent and Next added 34 per cent.