Banks braced for more bloodshed

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The FTSE 100 index fell 3.4% on Tuesday, to add to Monday's 4% fall as investors continued their desperate selling.

On Tuesday, the Footsie briefly dropped below the 5,000 mark for the first time since June 2005 before recovering some ground later to close at 5025.6 points amid late session hopes of a US government rescue for insurance giant AIG.

But the two days of losses - the worst for the index since July 2002 - have wiped a total of £93 billion off the UK's leading shares.

Halifax Bank of Scotland (HBOS) sought to reassure investors over its funding, but failed to prevent its shares slumping for the second day in a row.

Britain's biggest mortgage lender's stock fell almost 40% at one point before closing 22% lower - making it by far the worst performer in the FTSE 100 Index. Shares in the bank closed at 282p on Friday but have lost more than a third of their value in two days following the turmoil at Lehman Brothers.

Veteran City commentator David Buik, of BGC Partners, said he expected another nervous day on the markets, but was surprised at the difficulties faced by HBOS. He said: "I would expect a modest recovery of the Footsie - 50 points or so.

"I think HBOS have been unbelievably and unfairly rubbished. They've got a good business model and I'm surprised their shares have been so heavily trashed."

Asian stock markets have partly recovered from the huge sell-off of the day before. Japan's Nikkei 225 average rose 1.6% to 11,788 by midday after sinking nearly 5% the day before to its lowest close in more than three years.

South Korea's Kospi climbed 2.7% and Taiwan's benchmark rose 1%. But Hong Kong's blue-chip Hang Seng Index was 1.4% lower, while Australia's S&P/ASX 200 shed 0.4%.