Market Report: RBS and HBOS slump on fresh bank fears

So, after the latest Monday meltdown, much of the market picked itself up, but the banks did not escape another hammering. After news that some of the UK's biggest banks had asked for a £15bn handout, the rumour mill started flowing. The one that had trad-ers jawing in the morning was talk of HSBC being lined up to take over... Royal Bank of Scotland.

This has been floating round for a while, and seems unlikely, but it is a brave commentator who would rule out anything in the banking sector at the moment.

As talk intensified that RBS was urgently seeking emergency funding – especially after Standard & Poor's cut its credit rating to AA- the previous day – the share price plummeted almost 40 per cent to 90p. It failed to rally, despite the bank denying officially that it had asked the Government for money.

As fear gripped the sector, HBOS overtook its rival to close down a staggering 41.5 per cent at 95p. HBOS had also been adamant that it had not approached the Government for funding. Both banks were at all-time lows, under £1 a share for the first time.

Another top-tier casualty yesterday was Autonomy Group, after several brokers turned on it. It was hit by the old one-two as first Panmure Gordon cut its target price from 830p to 776p, then Numis attacked. The broker downgraded the software sector after a profit warning from SAP, cutting its rating on Autonomy to "hold" and cutting the target price from 920p to 740p. The shares rallied at the close to finish down only 1.3 per cent at 822p.

The FTSE 100 dusted itself down and managed a slight rise of 0.35 per cent to 4,605.22, although not without a few bumps along the way, and no one is sure which way to jump. "This market could well fall to 4,200 points and clean everything out, which wouldn't be a bad thing. With volumes as low as they are and the ongoing uncertainty, people are tempted to take the rest of the week off," one trader said.

The top tier was saved by a rise in commodity and oil prices in the wake of the unexpectedly large 1 per cent cut in Australian interest rates.

After the miners had taken a pounding the previous day, one of the worst hit, Eurasian Natural Resources Corp-oration, rebounded 8.2 per cent to 449.75p. It had climbed part of the way back after falls of more than 20 per cent the previous day, after investors backed the investment plans outlined by its senior managers yesterday. The world's largest producer of ferrochrome said it is set to double investments in new projects to $6.9bn.

Elsewhere among the risers, the insurers rebounded, with Standard Life bouncing 9.9 per cent to 255p as it announced it had won a £200m mandate. The fund manager won the investment from Somerset County Council to manage an aggregate bond portfolio. Sector peer Friends Provident closed at the top of the pile, up 13.3 per cent at 459.75p.

The FTSE 250 failed to gain the support of its bigger brother, and actually fell 43.63 points to close at 7,431.16. Worst for much of the day was the software group Micro Focus, whose target price was also cut by Numis in its attack on the sector. It fell 11.9 per cent to close at 251p but was overtaken at the end of the day.

Investors were disappointed by headhunter Michael Page's third-quarter results, despite a 14.6 per cent boost to third-quarter profits. One said the company could have cut costs further and was worried by the warning on slowing job markets on either side of the Atlantic. The shares ended 6.8 per cent lower at 218.25p.

Second in the table was Mouchel Group after its full-year results received the backing of the market. Panmure Gordon was happy with the numbers and the dividend, sending the consulting group up 14.2 per cent to 330p.

Yell Group also had something to shout about after it successfully renegotiated the terms of its debt covenants. The shares leapt after the firm defied the rumour mongers predicting failure, to secure the deal with 20 per cent headroom above forecasts. It closed up 5.9 per cent at 99.25p. In the wider market, Fortune Oil was strong, rising 9.9 per cent to 7.75p. The oil price helped, but shareholders were more impressed with its sale of a liquefied petroleum gas distribution business in southern China for £700,000. The group sold its 80 per cent stake in Zhanjiang Fu Duo Gas to South China Gas.

The biotech group Antisoma was another enjoying a lift. It rose 4.2 per cent to 18.5p after it signed a collaboration deal with the Institute of Cancer Research.

In need of some treatment was JJB Sports, which slumped to successive days of heavy losses. It emerged over the weekend that credit insurer Coface had withdrawn cover for its suppliers, causing a plunge in shares, which continued a further 29.6 per cent to 19p.