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London's FTSE 100 fell below the 6,000 level on Thursday as uncertainty over
the impact of losses in the US sub-prime lending market persisted.
The index of leading UK shares lost 2.1% to 5983.3 points by 0920BST on the
back of heavy falls in Asia and further declines on Wall Street.
Concern about the state of world credit markets saw the US Dow Jones index
close below 13,000 on Wednesday.
Japan's Nikkei index lost 2%, with shares down 3.7% in Hong Kong.
France's Cac-40 index was 2.2% lower while Germany's Dax-30 opened down 1.8%
The FTSE has not fallen below 6,000 during a trading session since March this
year. It last closed below 6,000 in October 2006.
The problems in the sub-prime mortgage market will linger on for a while
Bart Ingels
Fortis Bank analyst
In the US, the Dow ended 1.3% lower at 12,861.5 points, the first time it has
closed below 13,000 since 24 April.
Unknown scale
The recent financial market volatility has been triggered by the US sub-prime
mortgage sector, which offers higher-risk loans to people with a poor credit
history.
As US interest rates have risen and the housing bubble has burst, a growing
number of sub-prime borrowers have defaulted on their loans.
This has led to extensive financial difficulties for a number of investment
funds with heavy exposure to the sector - and triggered fears of a wider
financial crisis.
While some estimates say $300bn in loans could be at risk, one of the biggest
worries for investors is not knowing the eventual scale of the problem.
Central banks have been trying to restore confidence and avoid a credit
squeeze, with the Bank of Japan announcing on Thursday that it would inject a
further 400bn yen ($3.4bn) into its banking system.
However, such moves, along with comments by US Treasury Secretary Henry Paulson
that the economy was strong enough to withstand the turmoil, have done little
to appease investors.
In Japan, the Nikkei index closed down 2% at 16,148.49 and elsewhere in Asia,
Singapore lost almost 3.7% and Australia's benchmark S&P/ASX 200 lost 1.7% -
having at one point suffered its biggest one-day percentage drop in more than
seven years.
And in Mumbai, India's Sensex index lost 3.7% of its value.
Credit problems
Australian home loan firm RAMS saw its shares sink 36% after it said it had
failed to refinance 6.17bn Australian dollars ($5bn; 2.5bn) in debt after the
credit crunch spurred by the crisis in the US housing market.
The problems also came to the fore when Merrill Lynch told its clients to sell
any shares they own in the country's largest mortgage lender, Countrywide
Financial.
It warned that Countrywide could face bankruptcy if the availability of credit
in the market got any worse - and there were market rumours that the lender had
failed to raise some money it needed.
"The problems in the sub-prime mortgage market will linger on for a while,"
said Bart Ingels, an analyst at Fortis Bank, in Brussels.
"Some days it was a little bit better but then negative news came to the fore,
and it will go on like that for a while."
Worries about a slowdown in US consumption were not helped by results from the
department store Macy's, which blamed the "difficult" climate for a 77% fall in
its quarterly profits.
The US Federal Reserve made another $7bn ( 3.5bn) of reserves available to the
banking system on Wednesday. The Fed has injected $71bn into the system since 9
August.