Britain's top share index tumbled nearly 4 percent on Friday, its biggest fall in more than four years, as a lending squeeze that forced central banks to inject cash into the banking system spooked investors. The FTSE 100 index closed down 3.7 percent at 6,038.3 - its biggest one-day percentage fall since May 2003.
The US Federal Reserve intervened twice in one day, while the European Central Bank and the Bank of Japan among other central banks injected liquidity into banking systems on Friday. Despite the additional cash, uncertainty about the scale of a possible US subprime fallout served a blow to stocks and especially financials, which have exposure to that market.
"As far as the FTSE is concerned, we walked in this morning and we knew it was going to be bad because of everything that had happened in the Asian markets overnight," said Neil Parker, market strategist at RBS.
"It's just a natural reaction to what have been some fairly freakish liquidity conditions. The central banks have got to grips with it in that they've made it very clear that they are the lenders of last resort."
HSBC, HBOS, Standard Chartered, Lloyds TSB, RBS and Barclays were down between 2.8 and 6.4 percent. But the biggest loser was British mortgage bank Northern Rock which sank 9.6 percent. Man Group tumbled 9 percent after a source familiar with the plans said the world's largest listed hedge fund group would delay the public offering of one of its funds, and on weakness in financial markets.
Worries that a credit squeeze would hurt global economic growth and sap demand for commodities also weighed on metal and oil stocks. Heavyweight BP fell 2.8 percent and Royal Dutch Shell lost 3.3 percent, as oil prices fell over $1 a barrel.
Lonmin was plunged 7.2 percent, BHP Billiton lost a hefty 6.7 percent and Rio Tinto lost 6.2 percent. Carnival, the world's largest cruise operator and British sugar and sweeteners maker Tate & Lyle were rare gainers.