Rollercoaster day for the City as markets suffer another slide

More than £90bn was wiped off the value of shares on the London stock market at one point yesterday during an extraordinarily frenetic and volatile trading day.

Financial markets across the world tumbled as worries grew that an outbreak of war would lead to a global recession and a wave of bankruptcies.

At one stage, the FTSE 100 index of Britain's blue-chip companies slumped by 337 points – 7.6 per cent – which would have made it the worst fall since Black Monday in 1987. More than 4 billion shares changed hands in the City – almost double the normal daily average. Investors were gripped by panic selling. "This has been the sort of day when people sell at any price," one fund manager said. A bomb alert that led to the temporary evacuation of the London Stock Exchange and a power failure that froze FTSE indices for 30 minutes added to the jitters.

For a while, the markets looked to be on the brink of meltdown as Wall Street also plunged by more than 300 points. But an unexpectedly positive statement from General Electric, one of America's largest companies and a bellwether for the US economy, triggered a sudden recovery. The 312-point drop on the Dow Jones index was transformed into a 60-point gain – a rise of more than 370 points – within just 60 minutes.

But the US rebound could not eradicate the gloomy mood in London and by the end of trading the FTSE was down 123 points, or 2.7 per cent. The market is now at its lowest levels since April 1997.

Yesterday's fall means shares have fallen by 10 per cent this week. "The market is not out of the woods by any means but it should get some respite this weekend," said Neil Irving, a technical analyst at the online analysts 4castweb.com.

Stock market experts in the City said shares were likely to fall further until America showed what military response it was planning to last week's terrorist attacks.

Mike Lenhoff, chief portfolio strategist at the stockbroking firm Gerrard, said the UK market was "under siege".

"It was one-way traffic in the stock market this week," he said. "But it is very over-sold and, moreover, it is very undervalued."

Two leading investment banks, Credit Suisse First Boston and UBS Warburg, cut their forecasts for this year's performance by the FTSE by 12 per cent.

Other analysts said the market was struggling, but played down talk that shares were in freefall, despite the compa- risons with the crash of October 1987. "This is not a crash, just people trying to find a level where they feel comfortable," said Gareth Williams, the UK Equity strategist at ABN Amro. "There is a climate of fear ... and while it is there, the market is struggling to price anything."

In Germany, the market hit its lowest level since the Asia crisis in 1997, after a downbeat assessment of the business environment from a key economics institute.

The sell-off started overnight when shares in both Japan and Hong Kong plunged sharply. Japan's Nikkei index fell more than 2 per cent and is now close to its lowest levels for 18 years.

In Hong Kong, the Hang Seng tumbled more than 4 per cent to its lowest level since October 1998, the time of the Russian financial crisis.

David Page, an economist at Investec, said: "With sentiment as it is, we could still be in for another bad week next week."