Credit crunch rocks global markets

But a late session surge helped the FTSE 100 Index recover some of the staggering losses seen in early trading, when the Footsie fell nearly 2% in the first few minutes.

The benchmark index closed 68.6 points down at 6459.3 - a fall of more than 1% - with some positive half-year corporate results in the US helping limit the decline.

The London market started on the back foot after heavy overnight falls in Asia, with markets reacting to a significant sell-off in America late last week on the 20th anniversary of Black Monday.

The 1987 crash saw the FTSE 100 shed 11% in one day, followed by a 12% drop the next day in response to US falls.

Trader Jimmy Yates of CMC Markets said the session closed more positively than expected after the poor start, but cautioned further losses could be on the cards.

Miners and housebuilders were among the hardest hit on the FTSE 100 amid fears of further trouble in the credit markets and the US economy, sparked off by Friday's 367-point fall on the Dow Jones.

Power station group British Energy suffered the most, with shares diving by 8% after it said four of its nuclear power reactors would remain off-line for longer than expected in order to carry out repairs to boiler units.

The mining sector was also down across the board, with a downbeat assessment from brokers at Citigroup compounding the impact of the wider market sell-off.

Markets have been under pressure since August due to a tightening in wholesale money markets, sparked off by soaring default rates among high risk mortgage borrowers in America.