The London stock market briefly slipped into bear market territory yesterday as it fell as low as 5,358 points, more than 20 per cent lower than its peak of June last year.

The FTSE 100 recovered slightly to close 72.2 points, or 1.3 per cent, lower at 5,440.5, but it is hovering near the brink of an official bear market, showing losses of 16 per cent this year.

Jonathan Loynes, chief European economist at Capital Economics, believes that the FTSE 100 has further to fall.

He said: “The steep falls in equity prices seen over recent weeks have brought the UK stock market back into line with consensus expectations for the economy, but with those expectations very likely to weaken further over the coming months, equities' adjustment may have further to go.”

The bear market in European stocks also tightened its grip.

The FTSE Eurofirst 300 index of the Continent's leading blue-chip companies closed down 1.47 per cent, having fallen earlier in the day by as much as 2.6 per cent. The index has dropped by 30 per cent since last July and by 15 per cent in the past two months.

Analysts said that there was worse to come. Philippe Gijsels, a European equities strategist at Fortis Bank, said: “We're probably close to a bottom, but not the bottom.”

In Germany, the Dax fell by 91 points, or 1.4 per cent, to close at 6,304.41, while in France the CAC40 lost 66.98 points, or 1.5 per cent, to end the day's trading at 4,275.61.

Asian stock markets also slipped. In Tokyo, the Nikkei stock average slid 2.5 per cent to its lowest close in nearly three months, while shares in Hong Kong slid 3.2 per cent. The Hang Seng index closed down 692.25 points at 21,220.81, a 15-week low.

US stocks rallied a little as oil prices fell slightly and Ben Bernanke, the Federal Reserve Chairman, said that the central bank was set to extend the emergency lending facility for Wall Street investment banks.

The Dow Jones industrial average, which fell into bear territory last week, ended the day up 152.30 points at 11,384.20. Elsewhere on Wall Street, the Standard & Poor's 500 was up 21.40 points at 1,273.70 and the Nasdaq Composite closed up 51.10 points at 2,294.42.

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