£70bn wiped off shares as FTSE plunges

By Holly Williams and Matt Dickinson, PA

Published: 21 January 2008

More than £70 billion was wiped off the value of blue chip shares today as the London market suffered its worst one-day fall since the September 11 terrorist attacks in 2001.

The stock market misery came as fears of a recession in the US intensified.

Traders described the losses on the FTSE 100 Index as "incredible", with the Footsie at one stage plummeting by as much as 330.7 points.

London's leading share index later closed down 323.5 points at 5578.2, almost equalling the dramatic 324-point fall seen the day after 9/11 and taking the FTSE 100 to its lowest level in around 18 months.

The drop continues an unprecedented slide in the top flight index this year amid a gloomy outlook for economies across the world.

Hefty overnight falls in Asian markets set the scene for today's decline, with indices in the region dropping by up to 4%.

Losses for the Dow Jones Industrial Average on Wall Street last Friday sparked the sell-off after investors were left unimpressed by President George Bush's plans to stimulate the all-important US economy.

Rumours today that Bank of China may become the latest banking giant to reveal a financial hit from the collapse of America's sub-prime mortgage market also tested investor nerves, according to experts.

The US stock market was closed for the Martin Luther King one-day holiday, but traders suggested America would be playing catch-up when it reopens tomorrow, which could lead to further volatility.

Martin Slaney, head of derivatives at GFT Global Markets, said: "The punches just keep coming. Ambivalence over Bush's rescue plan for the US economy was the trigger of this rout, causing fears of a global economic slowdown."

He added: "It's difficult to see where the turning point will come. With investors already pricing in a quarter-point cut in interest rates in the UK and as much as three quarters of a point in the US at the next meeting, it appears as though the usual fiscal stimuli are insufficient, as this can create an impression of panic."

Heavily-weighted banking and mining stocks were worst hit as concerns over a US economic slowdown gathered pace.

HSBC and Royal Bank of Scotland - both with heavy exposure to the US economy - fell 6% and 8% respectively.

FTSE 250 firm Northern Rock was one of only a few risers on the market, with shares up more than 46% as investors reacted positively to plans for a private-sector rescue for the mortgage lender.

Today's losses on the Footsie mean that the index is now down nearly 14% on this year's opening mark of 6456.9 - the worst start to a year since records began in 1935.

Richard Hunter, head of UK equities at broker Hargreaves Lansdown, said investors in London were "battening down the hatches" as US recession fears gripped the market.

He said: "People aren't buying the US bail-out story and that feeling has been exacerbated by the weakness overnight in the Asian markets.

"The other thing we have seen today is a lack of buying interest - people are battening down the hatches while they see what happens in the US."

Last week the Footsie dipped below the 6,000 barrier for the first time since the start of the credit crunch in August.

On Friday, President Bush unveiled plans for a special package of measures worth billions of dollars to help avoid a downturn in the US economy.

He said the growth package would have to be big enough to make a difference to the "large and dynamic" US economy.

Analysts are worried that the tax breaks and spending measures will do little to boost consumer spending in the US because of problems in the housing market.