The downward spiral of shares that began late on Tuesday continued today as the last vestiges of stock-market optimism from the UK's bank bailout plan dissolved.

Following the worst drop in the Dow Jones Average in more than 20 years yesterday and another pummelling for Asian stocks overnight, the FTSE 100 index was racing below 4000. It was down 211.2 points at 3868.3, wiping £50 billion off stock values.

Not one FTSE share posted a gain, and mining and oil companies were once more the biggest losers. But at least the banks held firm. HBOS was just 2.7p adrift at 83.2p and Lloyds TSB edged down 0.2p to 150p.

Japan's Nikkei Stock Average lost 10% overnight, with Hong Kong, India and Australia suffering lesser falls.

Shares rallied hard on Monday after the British Government unveiled its plan to inject capital into banks. Those gains have been wiped out as investor concern shifts from worrying the financial system may be in jeopardy to a recognition that the wider economy could be in major trouble.

Takashi Ushio at Marusan Securities in Tokyo said: "There's a certain degree of panic selling, but the sentiment's different. Last week, people were panicking over the financial system. Nobody really knew what would happen. But now it's the real economy."

A slump in retail sales in the US that was revealed on Tuesday has convinced many that the world's largest economy is already in recession, although official figures have yet to confirm this.

Legal & General, the insurer that manages £275 billion on behalf of pension funds, admits it is somewhat nervous about the prospect for shares. It said today that it was able to write £1.1 billion of new business in the nine months to the end of September, a rise of 5%, but is concerned for the future. Chief executive Tim Breedon said: "We remain at best cautious about the economic outlook for the UK. These are uncertain times for everyone."

L&G controls about 5% of the UK stock market, mostly in index funds, which means it is obliged to follow the market downwards.

David Buik at BCG Partners said: "We are heading perpendicularly into a deep recession. Shares should probably be given a wide berth until banks start lending to each other."

Libor, the interbank lending rate, remains high despite the recent half-point cut in interest rates.

Andrew Turnbull at ODL Securities said: "We seem to be entering a particularly nasty recession. However, it is important to look at some of the positives that the man on the street will soon be benefiting from.

"Over the course of this year, the high oil and food prices have caused consumer inflation, which has certainly exacerbated the effects of the credit crunch. However, now the oil price has nearly halved since earlier this year, there should be some relief felt over the coming months."