The Footsie reverted to recent form last night, veering into the red after an abortive move up during early trading.
The benchmark FTSE 100 slipped 38.59 points to 4,108.47, as the pressure to sell mounted, wiping out any trace of Friday's 25.95-point gain. The loss means that the index has closed down in eight out of the past nine sessions.
Volumes were at record highs, with 1.87 billion shares trading hands on the FTSE 100.
The banking sector proved the biggest drag on the market as investors scrambled for the exit after Royal Bank of Scotland, down 66.57 per cent or 23.1p at 11.6p, said deteriorating market conditions and rising impairments could push it to a full-year loss of up to £28bn, the biggest in British corporate history.
The grim revelation was accompanied by some mixed views about new government measures to ease the financial crisis, with one analyst warning that further losses from the combination of deflation and deleveraging were likely to consume the additional funds, potentially leaving shareholders at risk of further dilution.
Lloyds, down 33.94 per cent or 33.4p at 65p, and Barclays, down 10.2 per cent or 10p at 88p, were also caught up in the sell-off.
The latter was hit after corporate credit analysts at Dresdner Kleinwort warned that last week's profit update may not be enough to quell investor concern.
Elsewhere on the FTSE 100, Wolseley lost 9.06 per cent or 31.25p to 313.5p after the weekend press said it was in talks to raise as much as £500m in rescue capital from investors and private equity groups.
Deutsche Bank said the news suggested that the construction materials group "is getting close to its debt covenants". It added: "We are not sure that the balance-sheet risk would completely disappear with a £300m-£500m raising, and downside risk to our [earnings] forecasts is of course not eliminated."
Firstgroup retreated 6.32 per cent or 21.25p to 315.25p after Goldman Sachs, Deutsche Bank and JP Morgan reduced their target prices for the stock to 290p, 337p and 455p respectively.
"We continue to believe that profits will fall on an underlying basis across the group, given a combination of declining passenger volumes (linked to rising unemployment), higher pension costs, higher fuel costs (in 2009/10), lower subsidies and budgetary pressures in the US leading to lower spending on public transport (as was the case in the early 1990s)," Goldman said, reiterating its "sell" advice.
London Stock Exchange, down 2.56 per cent or 13.5p at 514p, was unsettled after Credit Suisse reduced its target price for the stock to 495p from 575p, saying it continued to believe "that market expectations do not fully discount the scope for lower listings activity, lower trading volumes and a decline in the number of real-time terminals".
The broker added: "Cash equities volumes have slowed in recent months, and we expect this to continue owing to the 40 per cent decline in equity markets and halving of the hedge fund industry's assets under management."
The FTSE 250 closed down 34.11 points at 6,215.49, with Enterprise Inns taking the wooden spoon.
The pubs group fell 21.14 per cent or 9.25p to 34.5p amid fears that the storm besieging the banks may impact the sector's refinancing needs.
Punch Taverns, which is often at the centre of concerns about the high levels of debt in the sector, was also weak, losing 16.67 per cent or 6.5p to 32.5p.
The mezzanine finance provider Intermediate Capital slumped 17.8 per cent or 121.5p to 561p after Bank of America/Merrill Lynch downgraded the stock to "neutral", citing deteriorating conditions in the leveraged loans market. "As a result of a 17 per cent fall in leveraged loans and a 27 per cent fall in listed private equity stocks, we believe our estimate of [Intermediate Capital's] mark-to-market book value has gone from £460m in November 2008 to £206m today," the broker said, cutting its earnings-per-share estimates by 39 per cent for 2009 and by 36 per cent for 2010.
The travel group National Express, up 0.25p at 420p, was the focus of vague speculation suggesting non-executive director and shareholder Jorge Cosmen may be plotting a break-up bid.
The sub-prime lender Cattles touched a high of 22p, up 3.25p, on reports it was moving to warn the Government about the impact of the banking crisis on credit availability for those seeking loans from non-high street lenders like itself. The news fuelled speculation Cattles may win state support, which could help it secure its refinancing requirements. Dented by profit-taking late in the session, the stock closed down 0.25p at 18.5p.
The housebuilder Taylor Wimpey retreated 16.88 per cent or 3.25p to 16p after Fitch, the ratings agency, warned the 2009 credit outlook for the western European construction and homebuilding companies looked "increasingly negative as economic conditions worsen and access to finance remains difficult. The homebuilding sector remains of greatest concern".Reuse content