DEMANDS for official intervention to stem the continued rout in share prices grew yesterday as another day of carnage on the stock market saw the FTSE 100 index plumb new lows.

The Government, Bank of England and the Financial Services Authority (FSA) faced a chorus of calls for action as plunging markets fuelled anxieties over the threat of failure by financial institutions.

The FSA, Britain’s chief financial watchdog, said that emergency plans had been drawn up to deal with further market falls. It, however, declined to comment on what measures it was ready to take.

The regulator’s disclosure came as the FTSE suffered a grim eleventh straight day of decline, tumbling another 122 points or 3.4 per cent to close at 3,480.8. At its worst levels yesterday, fears over a war in Iraq and a fragile economy drove the FTSE as low as 3,460.3 — erasing more than half of its value from the peak reached at the end of 1999.

The FSA said that embattled life insurers would be allowed to slip beneath tough solvency requirements because of the impact of the market’s slump on their finances.But the regulator said that, while it would be “flexible”, insurers would be forced to submit detailed recovery plans to take advantage of the concession, previously only available to Equitable Life.

City veterans doubted that the authorities would take any further measures unless there was a systemic risk to financial stability. Richard Buxton, head of UK equities at Schroder, the fund manager, said: “Nothing will happen until the first body is floating down the river.”

Equity traders left their desks last night steeling themselves for a further sharp sell-off today as Wall Street continued to tumble. The Dow Jones industrial average crashed through 8,000 as Hans Blix, the chief United Nations weapons inspector, delivered his findings on Iraq.

The Dow later closed down 141.45 points at 7,989.56.

The war fears also saw a renewed assault on the dollar, which hit three-year lows against the euro and sterling before clawing back ground.

The Bank of England also faced calls to step in. David Ruffley, the Conservative MP for Bury St Edmunds and a member of the Commons Treasury Committee, said that he would press for a hearing with Sir Edward George, the Bank’s Governor. “In the face of alarming news about the stock market it would be reassuring to hear from the Bank,” Mr Ruffley said.

Steve Russell, equity strategist at HSBC, said a cut in interest rates would not help. He urged the Bank and ministers to consider other strategies. Short-term lending of gilts to life insurers by the Bank, which could be guaranteed against equity holdings, could help, he said. He urged Gordon Brown, the Chancellor, to consider reversing the withdrawal of dividend tax credits for pension funds, dubbed the Government’s “smash and grab” raid on pensions. He said this measure could help to arrest large-scale selling of equities by pension funds.

Michael Howard, Shadow Chancellor, attacked the scrapping of the tax credits. “Gordon Brown’s £5 billion per year pensions tax raid has made UK shares less attractive and has led to the stock market going into a downward spiral,” he said.