Stock market falls by £20bn as top economist warns credit crunch is only at 'halfway point'

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Fears that the credit crunch is intensifying led investors to dump shares in banks and retailers, sending the FTSE 100 tumbling 2.4 per cent to 5,320.4.

Misery: Traders are feeling the pain of plunging markets

Barclays lost more than 5 per cent of its value, while shares in Marks &Spencer fell by 6 per cent amid signs the retailer is struggling over the downturn on the high street.

Crumbling consumer confidence has forced M&S to cut costs, raising concerns that it may reduce its 70,000 UK workforce.

News of M&S's woes underlined the malaise engulfing retailers, as B&Q owner Kingfisher slumped 6.3 per cent and Currys group DSG fell 5.3 per cent.

Kenneth Rogoff, former chief economist at the International Monetary Fund, predicted that the slump could claim another U.S. bank after the demise of Wall Street giant Bear Stearns in the spring.

He said: 'We're not just going to see midsized banks go under in the next few months, we're going to see a whopper, one of the big investment banks.'

Mr Rogoff also warned that the credit crunch is only at the 'halfway point' and that 'the worst is to come'.

Wall Street slid more than 100 points last night and American investors were rattled by reports that their government plans to spend billions of taxpayers' cash to bail out mortgage giants Fannie Mae and Freddie Mac.

A Northern Rock-style nationalisation of the two home loan finance firms would spell even more trouble for America's tumbling property market, experts say.