FTSE riding out global sell-off

London's leading shares were riding out a global sell-off today after Wall Street's lowest close for more than a decade reverberated through world markets.

Wall Street's Dow Jones Industrial Average plunged 3.4 per cent to its worst finish since May 1997 last night, as lingering fears over the economy and the financial system sent investors heading to the exits.

The nerves hit Asian markets overnight, with Japan's Nikkei 225 plunging to near 26--year lows and Hong Kong's Hang Seng down almost 4 per cent at one point.

The FTSE 100 Index opened in negative territory, but its losses were limited in early trading amid gains for bank shares. At 9.30am it was down just 18 points (less than half a per cent) to 3833.

In the US, banks have been hammered by concerns over possible nationalisation, but reports that Lloyds Banking Group and Royal Bank of Scotland were close to sealing a deal with the Government to insure £500 billion in loans helped both companies advance.

RBS advanced almost 3 per cent, while Lloyds was 1 per cent higher. Lloyds was also boosted by a Financial Times report that Chancellor Alistair Darling was set to waive the £480 million annual interest fee on loans made to the bank.

The repayments on the Government preference shares - agreed at the time of the first banking bail-out last October - will be dropped to ease the pressure on the bank as part of a deal for it to improve lending, the report said.

The Government recently transferred £5 billion in preference shares in RBS into ordinary shares to give it a 68 per cent stake in the bank.

Mr Darling is said to be keen to change the Lloyds' preference shares into non-voting shares to prevent the taxpayer's stake in the bank rising above 50 per cent.

Investors in London were also favouring traditionally defensive sectors such as pharmaceuticals and utilities in the market turmoil.

In the US - where the Treasury said it would launch a revamped bank rescue scheme this week - the Dow is just over 100 points from the 7,000 mark.

The index has lost around half its value since hitting record highs in October 2007, while the FTSE 100 Index is more than 40 per cent off its peak.

CMC Markets trader Jimmy Yates said the "aggressive" sell-off in the US came as uncertain investors sent stock markets swinging wildly.

"There is an extended, unprecedented level of volatility. The way this recession is beginning to look so protracted we might be here for a while yet," he said.