Jittery markets hit by French rating rumour
Global stock markets tumbled again as fear over the health of the US economy and rumours of a possible credit downgrade for France sent investors running for cover.
In London, the FTSE 100 closed down 3% and 157.8 points at 5007, as a morning rally evaporated in the face of big falls for all of the main indices on Wall Street.
The Dow Jones Industrial Average fell by more than 400 points, giving back all of Tuesday's late rally following a commitment to keep interest rates low until 2013 by the US Federal Reserve.
The US market yesterday rose 4% in its biggest rally since 2009 as investors were reassured by a Federal Reserve pledge to keep interest rates at their record low for two years.
But the rally, which also saw Asian markets make strong gains overnight, was short-lived after new eurozone debt fears emerged, with France's finances under the spotlight amid rumours it will see its credit rating downgraded.
Traders are also increasingly interpreting the Fed's statement as negative after it said growth this year has been "considerably slower" than it expected and that it anticipates a slower pace of recovery over coming quarters.
Bank shares across Europe were hit after rumours that France could see its AAA rating downgraded.
The CAC index in Paris and the Dax in Frankfurt both saw falls of more than 4% at one point, while Italy's main index dropped by more than 5%.
Banking shares were among the biggest losers on the London market yesterday, with Barclays down 4% and HSBC off 3%.
World markets have been in turmoil for more than a week as investors fear that the debt crises in the US and the eurozone would lead the global economy back into recession.
Markets have become increasingly fearful about the world's biggest economy after its recovery slowed in recent months and credit ratings agency Standard -amp; Poor's stripped the US of its prized AAA status.
World markets have fallen some 15% since July 22, which has wiped about $4tn (£2.5tn) from their value.
Analysts warned that markets would still show volatility because the underlying cause of the recent bloodbath had not been solved.