News of a shock fraud charge lodged against US investment bank Goldman Sachs sent London's FTSE 100 Index falling today.
The Footsie tumbled by 1.7% at one stage in late afternoon trading after America's Securities and Exchange Commission accused the Wall Street giant of defrauding investors in its disclosures about securities sold that were tied to sub-prime mortgage securities.
The civil fraud charge caught markets by surprise on both sides of the Atlantic as investors feared further fallout from the investigation.
US benchmark index the Dow Jones Industrial Average fell more than 120 points in early trade.
Joshua Raymond, market strategist at City Index, said: "This news now creates uncertainty in the market in terms of whether there are likely to be any other major banks involved or under investigation.
"Moreover, we don't know what the consequences of this charge will be for Goldman Sachs."
He added: "Whenever there is uncertainty, investors tend to run for the hills and with there likely to be more news on this over the weekend when the markets are shut, investors have sought to move out of their riskier holdings by selling the banks and the miners into the European close."
UK banks had been seeing gains for most of the session, but soon suffered sharp declines after the Goldman announcement.
Barclays fell 3%, HSBC dropped 2% and part-nationalised Lloyds Banking Group slipped 1%.
The only British bank to stay out of the red was taxpayer-backed player Royal Bank of Scotland as it clung on to gains thanks to cheery comments earlier in the session from broker Morgan Stanley.
The wider market closed 81.1 points down at 5744, mirroring falls across stock markets globally.
In Europe, France's Cac 40 suffered a 1.9% decline and the Dax in Germany was 1.8% in the red.
Oil prices also fell in reaction, down below 83 US dollars a barrel in New York trading.
Goldman's fraud charges come as the US bank earnings season gets into full swing, with Goldman itself due to report first quarter figures next week.
Fellow US group Bank of America had earlier provided some cheer from the sector after announcing a return to profit in the first three months of 2010.
But trading on Wall Street was already under pressure after Google's results failed to impress and as weak data on the US housing market hit sentiment.Reuse content