Shares on both sides of the Atlantic plummeted today. The Dow Jones Industrial Average hit a 12-year low in New York while the FTSE 100 index was down 152.7 points or 4% at 3677.39 in London — its lowest for six years.

The Dow tumbled 136.76 points, or 2%, to 6926.17, its lowest since 1997. The slumps mirrored sharp falls on stock markets around the world, with European indices down more than 3%.

Banks and property firms led the Footsie's decline while US investors were spooked by news of a world record $61.8 billion (£44 billion) quarterly loss at embattled insurer American
International Group, sponsor of Manchester United.

The losses fuelled worries the already deep financial crisis is worsening. They followed last week's shocking US figures, which showed economic output was 6.2% weaker in the final three months of 2008 than a year earlier.

Billionaire investor Warren Buffett added to the gloom with a warning that “the economy will be in a shambles throughout 2009”.

John Wilson, at Morgan Keegan in Tennessee said: “The problem is that no one yet has a feel that the recession will end this year. The depth and duration of the recession is up for question and until people determine that, I think the market will have a tough time making a lot of progress.”

The AIG losses dwarfed the $5.29 billion deficit it racked up in the fourth quarter of 2007. The insurance giant will get up to $30 billion of US taxpayers' money to stay afloat in on top of the $150 billion it has already been given. The US government believes the firm, which insures the value of banks' investment products, is “too big to fail”.

Bill Strazzullo at Bell Curve Trading said there was a good chance the Dow will fall back to its 1995 level of 5000.

“As bad as things are, they can still get worse, and get a lot worse,” he said.