Share bears take control as London slides again

As Wall Street opened for business, the Dow Jones dived 260 points within minutes, suggesting the medicine hadn't worked and putting Fed chairman Ben Bernanke under considerable pressure.

It later stabilised but still at lower levels than last night's close.

Inflation, a credit crunch and falling house prices suggest a year of pain ahead.

London fared little better than New York. Another day of turmoil in the City sent the FTSE 100 index down as investors worried that the world economy is in the midst of what could be a lengthy recession.

Although the Footsie opened up brightly, by late afternoon it was down 91.7 to 5648.4 as pessimism took hold.

Dealing rooms are still reeling from Monday's £77 billion wipe-out, and any bad news outweighs the good.

Analysts now expect the credit crunch that has aff licted America to bite equally hard in the UK.

David Buik at BGC Partners said: "Borrowing facilities for both consumersand industry will be tough to come by. The worthiness of requests for loans could in many cases become meaningless."

Even fund managers attempting to drum up business were cautious.

Robert Parker of Credit Suisse's assetmanagement arm said: "Even if earnings growth slows from double to low single digits, many equity markets still offer good value. However, investors should prepare themselves for further volatility or down markets in the near term."

The German DAX lost more than 2% and France's CAC fell 1.5%. Comments by financier George Soros, arguing a world recession was all but inevitable, encouraged the bears.

London rallied yesterday after the US Federal Reserve slashed interest rates by three-quarters of a point to 3.5% in a bid to stave off another plunge.

The Federal Reserve is expected to cut rates again very soon, but analysts note that the boost from so doing is less each time.

Bank of England Governor Mervyn King last night ruled out such dramatic interventions - a stance seen as a rebuke of the Americans.

Today's minutes from the Bank's monetary policy committee also stifled hopes that UK rates are certain to fall. Analysts now doubt the FTSE will climb back above 6000 this year even if corporate profits are strong.

Matt Buckland, a trader at CMC Markets, said: "There is still the chance nerves could get the better of investors and we may see another run of selling, but there is now some scope to let the focus return to the fundamentals."

At the World Economic Forum in Davos, Switzerland, PwC chief executive Samuel DiPiazza spoke of a "tale of two worlds". He said: "The credit crunch and the slowdown in the Western economies have created a clear split in confidence levels."