Financial institutions were major casualties again today as traders returned to their desks in gloomy mood after the bank holiday weekend.
Last week's rebound in share prices proved short-lived, with the FTSE 100 index falling 117.9 points to 6102.2 by the close on continuing uncertainty over the repercussions of the US sub-prime problems.
The UK market's fall accelerated during the afternoon as Wall Street opened sharply lower after a series of negative indicators. US consumer confidence fell in August to its lowest level in a year, while for the second day running came some downbeat housing figures. There was also a downgrade of major US banks by Merrill Lynch due to the turbulence in the debt markets and slowing economic growth.
On top of that, dealers said minutes of the last Federal Reserve meeting - due later today - would be scrutinised for hints about the US central bank's view of the volatility. A speech later this week from Fed chairman Ben Bernanke would also be crucial for investor confidence, they said. By the time London closed the Dow Jones Industrial Average had lost around 140 points.
Gold and oil were lower on worries about how the current global turmoil in the credit and share markets would effect economic growth.
David Buik of spread betting group Cantor Index said: "There is no doubt that the [recent] central bank intervention on a very considerable scale plus the distinct possibility of one Federal Reserve rate cut - probably on September 18 - has temporarily smoothed the turbulent waters of uncertainty. However, the time is not yet right to start popping the champagne corks."
He added: "The market is still unable to quantify the damage that sub-prime lending in the US - together with relevant bond, derivative and financial engineering activity across the global spectrum - has inflicted on the investment and banking community. It could be some months before the level of destruction has been quantified. That being the case, banks could well go in to their shells and be reluctant to finance great fresh tranches of business and [merger] activity. Were that to be the case, growth could well be affected, which could trigger another fall in the value of equities."
Among the losers, Barclays fell 22p to 589p despite the bank denying reports it had exposure of hundreds of millions of dollars to failed debt vehicles. Its Barclays Capital business was reportedly involved in an investment vehicle for German lender Sachsen LB, which ran into trouble and is being sold to rival LBBW.
Royal Bank of Scotland lost 18p to 563p on concerns that Dutch regulators could impose tricky conditions on its proposed bid for ABN Amro, where it is battling with Barclays to buy the Dutch bank.
Other falling financials included Schroders, down 54p to £11.03, and Standard Life, 12.75p lower at 284.5p. Later Morgan Stanley raised Standard Life from underweight to overweight.
Mortgage lenders were not immune. Bradford & Bingley lost 20.25p to 369p after JP Morgan issued an underweight recommendation and cut its target price from 370p to 350p "to reflect lower mortgage profitability". It said there were concerns about its exposure to sub-prime problems. "We estimate B&B's sub- and near-prime book to be £1bn at 2007 estimates," said the JP Morgan analysts.
Alliance & Leicester suffered in sympathy, down 41p to £10.08. Northern Rock - which weakened on worries about its funding from wholesale markets only to be subject to HSBC takeover talk - fell another 27.5p to 712p.
Building materials group Wolseley fell 39p to £10.11 on worries about its exposure to the struggling US housing market, while mining group Lonmin lost 191p to £29.81 on profit-taking.
In the second-liners PartyGaming lost 1.75p to 22.75p ahead of tomorrow's results, while Rank slipped 5p to 150.5p as Deutsche Bank cut its stake from 6.55% to 5.68%.
On the way up was Punch Taverns, 1p better at £10.49 on vague talk of a possible bid from rival Mitchells & Butler, down 15.5p to 704p.
Power group Drax was wanted for its defensive qualities, up 10.5p to 645p.
Results from energy services group John Wood showed a 61% jump in first-half profits. With a confident statement on the rest of the year, its shares jumped 15.75p to 352.5p.
Back at the speculative end of things, the London Stock Exchange climbed 31p to £13.44 on talk that a rival such as NYSE Euronext might buy some or all of the 31% stake put up for sale by America's Nasdaq.
Lower down the market image processing company OMG added 2.5p to 57.75p after it won its second contract in a month with the Ministry of Defence.
But Eleksen - which specialises in smart fabrics to control electronic devices - slumped 8p to 12p after it said sales for 2007 would be materially below market expectations.
Finally Renesola, the Chinese solar panel wafer maker, fell 49.5p to 210p on further reaction to Thursday's news that production problems would hit its results this year.