Amid the carnage, there was a glimmer of hope – but only a glimmer, and it couldn’t last. It came just as Wall Street began to rally back from a near-700-point plunge on opening. The FTSE 100, in turn, was lifted as traders reported a panic flurry of bargain-hunting by hedge funds. Yet even those gains subsided by the close, to leave London’s main index down 381.74 points at the close, at 3,932.06, the biggest fall since Black Wednesday in 1987.

Banks were again hit worst after an auction in the United States of Lehman Brothers’ derivatives put a tiny market value on them, crystallising big losses for any banks that had bought them. It is thought that both Royal Bank of Scotland and Barclays have substantial exposures. RBS was the second-biggest faller in London, down 24.¼ at 71¾p. HBOS fell 29¼p to 124.¼p as hopes for a Lloyds TSB bail-out deteriorated.

There were also growing fears that retail investors would bail out of unit trusts, Isas and funds managed by the likes of Schroders, the worst blue-chip performer, down 222½p at 547½p. Citigroup reiterated its “sell” advice, predicting further redemptions over the next three months as people became aware of what the stock market was doing. Legal & General fell 14.3p to 74.7p after being seen as most exposed to investors selling off their unit trusts.

Global recession fears weighed across the board and miners fell nearly as hard as the banks after Chalco, China’s biggest aluminium maker, the world’s third-biggest, said that it was considering a cut in output of up to 20 per cent. Aluminium smelting is the most energy-consuming industrial process, so cuts in output would significantly reduce China’s demand for oil and gas. Rio Tinto fell 326p to £24.24 as analysts in Australia predicted that it and BHP Billiton, down 81½p at 954½p, would face 10 per cent lower iron ore sales this year because China had cut steel production.

The oil price fell again, therefore, and BP slumped 33¼p to 376¼p. Until the past few days, stocks with exposure to emerging markets had been resilient because India and China were seen as the last bastion of the world’s growth – but it was their turn to take a beating yesterday.

Vedanta Resources, the Indian miner, plunged 115p to 755p. Analysts at Evolution cut their forecasts for copper prices dramatically and, as a result, cut their price target on Kazakhmys from £18 to £4.15 – its shares fell another 45¼p to 334½p.

In the FTSE 250, Soco International, whose shares have not recovered after abandoning a key well in Vietnam, rose 26p to £11.50 after it said that it had received an approach to buy the majority of its assets. Sinochem, of China, which has already bought some of its Vietnam assets, is thought to be the likely predator.

Aricom, the owner of Russian iron ore desposits, slipped 4½p to 11¾p, the biggest faller in the FTSE 250 since the Moscow stock market closed trading indefinitely. It needs to find a backer to fund $1 billion extraction costs.

— New York: Shares on Wall Street endured a wild ride as investors went in search of bargains among stocks devastated by seven days of big losses. The Dow Jones industrial average closed at 8,451.19 points, down 128.00.

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