Shares slump as car firms and banks hit

World markets were shaken today after US plans to bail out the beleaguered car industry stalled in the Senate.

The FTSE 100 Index closed down 2.5 per cent - or 108 points at 4280 - as investors also reacted to further trading woes at Halifax Bank of Scotland.

Related articles

• Santander to axe 1,900 jobs in the UK
• Bush set to intervene over car industry bailout
• Why spendthrift Brown is scaring the Germans
• Germans turn the screw on Brown
• Steve Richards: Look out for the real crunch – it will be in the public services
• Sean O'Grady: Economic row with a political sub-plot
• George Osborne: Labour's folly has finally been laid bare
• Leading article: Germany has dispelled the myth of British-EU unity
• Angela - the pastor's daughter who has put her faith in prudence
• Pound plunges to new low against the euro
• 700 jobs go at Woolworths company
• Woolworths sale generates record takings
• Market update - 11 December
• Zavvi creditors call in 'restructuring team'
• 9pc fall in air passenger numbers
• Pledging shares against loans 'widespread' in City
• Oil demand will fall for first time in 25 years, energy body predicts
• Asda boss takes swipe at Tesco discounting
• Record plunge in inflation expectations
• Cattles shares plunge on bank licence setback
• Jeremy Warner: Crass Keynesianism should be replaced with pure Keynes
• Jeremy Warner: Sterling becomes a victim of deleveraging
• Credit crisis diary: City streets are paved with... er, urine
• Hamish McRae: Economy will recover – but later than the Bank predicts
• Search the news archive for more stories

Details of the company's spiralling bad debts in retail and corporate lending caused shares across the banking sector to fall.

Royal Bank of Scotland, which is 58 per cent owned by the Government fell more than 15 per cent. HBOS was down by 23 per cent, while merger partner Lloyds TSB slumped 17 per cent - on the day HBOS shareholders met in Birmingham and approved the company's takeover by Lloyds TSB.

Today's falls come after the FTSE 100 Index added more than 300 points during the first four sessions of the week.

But Joshua Raymond, market strategist at City Index, said the rally looked to have run out of steam amid uncertainty over the car industry.

He said: "We have seen a lot of investors taking their profits and watching and waiting."

Mr Raymond added: "If we do not get a swift resolution for the US automaker bail-out, the consequences for the market and the US economy could be devastating.

"There is a significant knock-on effect from a General Motors or Chrysler failure and the fall-out will have long-term consequences for a number of industries."

The collapse of the US bailout plans was reflected in Asian markets, with the Nikkei and Hang Seng both off by more than 5 per cent.

Shares slumped across Europe. By 08.21 GMT, the FTSEurofirst 300 index of top European shares was down 3.5 per cent at 824.11 points.

"Today, the main thing is the uncertainty around the auto industry and whether or not it will go bust. The auto worker unions are not accepting pay cuts which seems unreasonable under the current circumstances. This has markets worried," said Bernard McAlinden, strategist at NCB Stockbrokers in Dublin.

BMW, Daimler, Renault, Fiat, Peugeot and Porsche were down between 1.7 and 6.9 per cent.

The banking sector took most points off the index after the comments from the chief executive of JPMorgan Chase & Co. JP Morgan said it has had a "terrible" November and December, hitting banking stocks. HSBC, Banco Santander, BNP Paribas and UBS were down from 3.8 to 7.2 per cent.

Meanwhile, Bank of America Corp plans to eliminate 30,000 to 35,000 jobs over three years.