Britain's top share index slid 2.5 percent on Wednesday, led by banks and miners, as concerns over credit market strife and its impact on the wider economy gnawed at sentiment though buoyant oil lifted energy stocks.
The FTSE 100 ended down 155.6 points at 6,070.9 to hit its lowest closing level since August 17 after snapping a three-day losing run on Tuesday with a 1.7-percent gain. The UK benchmark index has lost nearly 10 percent so far this month, putting it on track for its biggest monthly percentage loss since September 2002, and is down 2.4 percent for the year. European shares also finished the day lower.
"It is the continuation of the problems that we have been seeing in the past week or two. It's a systematic break down of the market on reflection of the credit crunch," a trader said.
He said if the Dow Jones industrial average breached its August's low, then losses would accelerate. "If the Dow remains down at this level or below the August level, the bear market's actually started. If that's the case, any rallies we may see will be selling opportunities."
Manoj Ladwa, a derivatives broker at TradIndex, said the FTSE 100 was expected to test the technical level of 6,000 this week, a mark last breached in mid-August. Banks were the biggest sector losers, shaving 40 points off the index, with the slide from Northern Rock continuing.
The embattled British lender shed 12.6 percent after it said it had received more rescue proposals, but warned that one of them contemplated an offer well below Tuesday's closing price.
Fears over further credit-related losses and funding needs pulled other banking stocks down, with Barclays down 5.1 percent, Royal Bank of Scotland off 3.7 percent, HBOS falling 3.8 percent and HSBC, also trading without the right of dividend, losing 3.2 percent.
And buy-to-let lender Paragon lost nearly 30 percent, adding to 39 percent losses in the previous session. Credit Suisse said in a note that Paragon could be a target for rival Bradford & Bingley, which fell 2.6 percent.
The yen soared to its highest against the dollar in more than two years, triggering concerns that speculators were reducing risky positions funded by low-yielding currencies such as the yen in the so-called carry trade.
Comments by the US Federal Reserve on Tuesday that US economic growth would slow in 2008 added to the bearish mood, while investors dipped into government bonds in their flight to quality.
Miners also swam in the sea of red, as metal prices lost ground and fears over global demand took hold. BHP Billiton, Rio Tinto, Anglo American, Xstrata and Vedanta Resources were down between 3.9 and 5.1 percent.
Kazakhmys lost 6.5 percent after it said it expected this year's financial performance to reflect an expected slump in production due to mine flooding earlier this year. Oil shares offered some respite as crude prices crossed $99 a barrel before falling back. Royal Dutch Shell and gas producer BG Group are among the five gainers on the index.
Newspaper publisher Daily Mail and General Trust fell 8.9 percent after it announced year results broadly in line with expectations. UBS analysts said a "luke-warm outlook" means consensus forecasts for coming year unlikely to change. Cable & Wireless, Carnival, Sainsbury and Vodafone also fell after going ex-dividend.