Yesterday the index dropped 5.33 per cent, and after a brief fillip this morning the index continued its decline.

At 11:38 GMT, the FTSE 100 stood at 3,567.13 – a drop of 58.70 points or 1.62 per cent. It slid below the 3600 mark to close at 3512.1, a fall of 113.7 points (3.14%) on the day.
The fragile confidence of the market was underlined after a brief early morning rally for the banks soon fizzled out. The FTSE registered its lowest close since the 3287 recorded at the outbreak of war in Iraq at the end of March 2003.

Last night on Wall Street the Dow closed down 4.24 per cent to 6,763.29 – falling below 7,000 for the first time since 1997.

The drops followed record losses for AIG yesterday and a slump in profits for HSBC. Part-nationalised Lloyds Banking Group shed 8%, Royal Bank of Scotland fell 4% and Barclays lost 7%.

Markets in France and Germany were marginally down today after joining in yesteday's turmoil. Investors in America were hit yesterday after the Dow closed below 7,000 - at 6,763 - for the first time since 1997.

Joshua Raymond, market strategist at City Index, stated the initial rise was due to investors "hoping for a dead cat bounce.

"The timing of the falls over the last few weeks in the FTSE now gives the [Bank of England] an opportunity this week to restore that faith. We need to find a bottom and quickly before investors lose all faith in the market.

"We are looking at six-year lows right now. We can ill afford to be looking at 12-year lows like our US partners."

Today in London, the greatest losses at lunch were seen for miner Xstrata – down 7.20 per cent after its cash call was approved last night by shareholders, but not before many investors expressed their disapproval of a deal to sell one of its mines to Glencore.

Barclays and Lloyds Banking Group were down 6.73 per cent and 6.28 per cent – amid uncertainties over the whether they will sign up to the government's Asset Protection Scheme.