Alarm as £33bn is wiped off shares

More than £33bn was wiped off the value of Britain's biggest companies yesterday when world stock markets plunged because of fears of another downward lurch by the global economy.

The FTSE 100 closed down 141.1 points – it had briefly dropped more than 200 points – as investors decided consumer confidence on both sides of the Atlantic is in danger of collapsing. If that is the case, it would endanger the fragile recovery the City has built into share prices.

The latest data from America showed a sharp fall in consumer confidence in June and investors fretted there would soon be similar cracks in consumer spending in the UK. On Wall Street, the Dow Jones Industrial Average also lost more than 200 points in early trading and was still off 138 points by early afternoon.

Khuram Chaudhry, a strategist at the international investment bank Merrill Lynch, said there was a new mood of fear among investors yesterday. "The US consumers look as if they may be throwing in the towel. Until now, they have been keeping the economy up and people in the market suddenly feel the ceiling is coming down."

The FTSE 100 closed at 4630.8, its lowest level since 20 September. It is one third below its peak reached on 31 December 1999 and yesterday's close compares with a closing low of 4433.7 days after the 11 September terrorist attacks.

City experts said there was little prospect of a quick rebound in the markets.

Steve Russell of HSBC Securities said: "There doesn't seem to be any strong inclination to buy into equities. The returns have been dismal and there is not expected to be any decent news from companies for a while."

The Bank of England's interest rate committee said on Thursday it would have no option but to raise interest rates if the housing market and credit card spending did not moderate.