FTSE 100 rallies after early plunge, panic hits global markets

The FTSE 100 rallied in morning trading to 4,017.00 by 12:10 BST, after plunging ten per cent shortly after opening.

However, the index was still down 6.88 per cent from yesterday's close and by lunchtime every stock was in the red.

Financial stocks led the falls, with HBOS down 18.57 per cent at 12:10 BST, closely followed by Royal Bank of Scotland, down 16.98 per cent and Barclays, down 15.31 per cent.

The dramatic falls were sparked by massive losses on Wall Street last night, followed by equally sharp falls on Asian markets.

The Dow lost 679 points, or 7.3 per cent yesterday, closing at its lowest point since May 21st, 2003.

Japan's Nikkei fell 9.6 per cent and Hong Kong's Hang Seng index down eight per cent in afternoon trading.

Wall Street's response to the coordinated rate cuts shows the markets do not believe the intervention will be enough to ward off recession.

However, the Wall Street Journal has reported the US government is considering a UK-style re-capitalisation of the banks to help restore confidence.

Tim Hughes, head of sales trading at IG Index, said: "Uncertainty, fear and panic selling are driving the market."

As uncertainty is the driving force behind trading, any bounces are short-lived, Mr Hughes explained.

"There is concern the coordinated rate cuts may not be enough and this is echoed by Gordon Brown and Alistair Darling – they have done what they can but there is concern that without greater global action, it may not be enough."

Joshua Raymond, market strategist at City Index, added: "The markets have shown that it is naive to assume that the UK banking bail-out and rate cuts this week would turn the market instantaneously; confidence takes months to build and hours to shatter.

"It's been a long week in the history of the financial markets. What is happening now is not just history repeating; if you map out every single event along the way, we are setting a whole new precedent."