Big shares sell-off in jitters over 1987 re-run

Trading screens in the City turned red, sending the FTSE 100 index down 98.9 points to 6429 in early trading.

The sell-off followed heavy falls in New York on Friday night and in Asia this morning - reviving memories of the Black Monday stock market crash of 19 October, 1987.

Matt Buckland, a trader at CMC Markets in London, said: "Obviously there's speculation that we may see a repeat of the losses from Black Monday some 20 years ago. It is going to be sentiment rather than the fundamentals that provide the bulk of the direction."

Stock markets across Europe were braced for heavy losses today following a 367-point fall by the Dow Jones Industrial Average to 13,522 on Wall Street on Friday night. Asian markets plummeted this morning with the Nikkei closing down more than 2% in Japan and the Hang Seng down 3% in Hong Kong.

The global slide came amid concerns of losses related to the credit crunch and a sharp slowdown in the US economy.

The sell-off in New York was the biggest for two months although Richard Lake, head of technical analysis at Brewin Dolphin, pointed out that the 2.6% fall on Friday was tiny compared with the 22.6% collapse on Black Monday in 1987. "Nevertheless, it is not what the London market wants to hear and will not help immediate sentiment, especially as the banks sector still looks quite vulnerable," he said.

"The oil and gas sector might benefit from the surging oil price but both BP and Royal Dutch Shell are expected to announce lower third-quarter profits this week."

The rising cost of oil has sent petrol prices soaring on both sides of the Atlantic and fuelled fears about a slowdown in consumer spending as households struggle to cope.

However, the high oil price has helped the FTSE 100 index curb losses in recent days, offering support to major stocks such as BP and Royal Dutch Shell.

Oil peaked at above $90 a barrel last week although it eased slightly today. In London, Brent crude was down 54 cents to $83.25 a barrel, while in New York it was down 67 cents to $87.93.

Credit Suisse today downgraded its earnings expectations for British banks in 2008 by about 15% as the shake-out from the market turbulence continues. It highlighted tight lending conditions which have driven up costs.

But a report by the Ernst & Young Item Club today said the credit crunch was "an opportunity to rebalance the economy" which has become too dependant on cheap credit.

Professor Peter Spencer, chief economic adviser to the club, said: "The longer-term consequences of the credit crunch are difficult to predict.

"One thing is certain, this is a very timely tightening, targeting parts of the financial sector that were growing too fast and were too dependent on cheap credit. Having a reverse gear may not be such a bad thing."