The FTSE 100 has slumped to 2-3/4 year lows after Abbey National led the skid in banking stocks and a firmer start on Wall Street failed to revive confidence.
Mortgage bank Abbey National slid 8.8 per cent to £11.24 pence after reporting a 15 per cent rise in first-half profits. An unexpected jump in bad debt provisions and acquisition worries jolted the shares.
The sector wiped 31 points from the benchmark index, with Barclays, Lloyds TSB, Halifax and Bank of Scotland down sharply.
The blue-chip index was last down 52.9 points, or 0.99 per cent, at 5,267.3, having dipped below March's 5,279.6 nadir, the lowest since late October 1998, which technical analysts say opens the way for a fall to 4,600 points.
"The pressure on corporate profits has spread from techs elsewhere, and the number of safe-haven sectors has shrunk. We are back to the basic three: drugs, food and drinks," said Mr Peter Cartwright, strategist at Williams de Broe.
After banks, telecoms and mining stocks wiped 20 points off the FTSE index, which is down 24 per cent from its end-1999 record high and down 15 per centfrom end-2000.
Heavy losses from major tech player Siemens cemented the gloom one day after US rival Lucent announced steep job losses.
British engineering and electronics group Invensys, which warned on profits yesterday, came under fresh assault as brokers downgraded the stock. The shares fell over 11 per cent to 76.75p.
On the upside, oil shares rose on the back of firmer oil prices with BP and Shell up.
Media stocks recovered from yesterday's sell-off with BSkyB up 3.3 per cent and EMI Group up four per cent.