Market professionals estimated up to 50 points could be wiped off the FT-SE 100 share index, as dealers took fright from expected tumbling share prices in Japan. One senior City figure, who did not want to be identified, suggested the Nikkei index might plummet up to 1,000 points on resumed trading.
"This is pretty traumatic stuff for the UK market," said Nick Knight, strategist at Nomura, the Japanese stockbroker. "There will be a lot of uncertainty, and that of course isn't any good. I think we will see a drop of 30 to 50 points in the FT-SE."
Many observers think the pound will also be challenged in currency markets in the Barings aftermath.
Paul Walton, Goldman Sachs strategist, said similar crises had prompted up to 10 days of stock market uncertainty, as dealers wait to see if the cataclysm unearths widespread vulnerability to volatile derivatives, or whether it is an isolated incident sparked by a maverick Far East trader.
Another City figure said Barings was probably the tip of the iceberg. "There are a number of major international financial institutions who have yet to reveal their derivatives' exposure."
Mr Walton, who believes that share prices in Britain and Tokyo could slump by up to 7 per cent in the short term, added: "The big question will be, who else has lost money because of all this?"
One senior figure at a leading London securities house said: "I think we could be talking of 50 points off when the UK market opens. Shares in clearing banks and investment banks will probably fall because of fears of similar exposures to derivatives they have not identified yet. I think lots of financial institutions will be doing an audit this weekend."
It is thought shares in the clearing banks which earlier were cited as possible buyers for Barings - such as NatWest, Barclays and HSBC - will be hit. Merchant banks such as Warburg and Kleinwort Benson are also expected to come under pressure.
City observers felt Wall Street, when it opens this afternoon, is also likely to take its cue from Tokyo. The Singapore International Monetary Exchange is expected to open for business as usual today amid fears that equity prices will tumble.
Michael Marks, chairman of Smith New Court, said it would be disastrous for London's credibility as a financial hub if Barings sunk.
If a rescue package was unsuccessful, he said: "The failure of a house like Barings would question the whole fabric of the City."