Markets hit by world recession fear

Global stock markets took another pounding today (PA)

Global recession fears continued to haunt world markets today, sparking another volatile day of trading.

The FTSE 100 Index slumped by up to 3% at times, pushing it below the 5000 barrier, as banking stocks tumbled amid fears that they were running out of cash and borrowers would not repay debts.

Markets were also dogged by worries that the US and eurozone economies would slide back into recession, crippled by the weight of their debts, while emerging markets such as China would also suffer.

London's leading share index clawed back most of its gains in late trading but still closed down 1%, or 51.5 points, at 5040.8.

Its performance was boosted by early gains made by the Dow Jones Industrial Average in the US, which helped to settle traders' nerves.

London's benchmark index also slumped 4.5% yesterday after the biggest points fall in its history for nearly three years.

Yesterday's rout followed a downgrade of global growth forecasts by investment bank Morgan Stanley and poor economic data from the US.

Today's falls mean the London market has now lost 5% of its value in the week, wiping £72.7 billion from the value of the UK's biggest companies.

The banking sector saw further falls today. It bore the brunt of the losses yesterday amid reports that US regulators are checking the American operations of European banks for possible contagion from the eurozone debt crisis.

Lloyds Banking was down another 5% today after a 9% fall yesterday, with Barclays following up an 11% fall with a 2% decline.

Taxpayer-backed Royal Bank of Scotland was also down 5%. Its shares are now at 20.8p - less than half the 50p-per-share price the Government paid for its 81% stake in the bank.

Shares in Lloyds are at 28.4p, compared with the 63p paid for by the Government for its 41% stake.

One European bank is reported to have asked for 500 million US dollars (£303 million) from the European Central Bank's swap line with the US Federal Reserve as it could not get the money from the markets.

Concern over the health of French banks and their eurozone debt exposure was a major cause of the stock market slump earlier this month.

A plan by German chancellor Angela Merkel and French president Nicolas Sarkozy to tax financial transactions has also undermined share prices in the banks and other financial stocks.

PA