Billions of pounds were wiped from company share values this morning as fears of a US recession reverberated around the globe, sending FTSE 100 index down to its worst level in 15 months.

London's benchmark index of blue chips dived by 117 points to 5,785 when the market opened this morning, following frenzied trading in Asia as investors drained cash from the Tokyo and Hong Kong markets.

In the UK, mining companies, retailers and banks bore the brunt of the markdown in prices as dealers decided that President George W Bush's proposed stimulus package for the US economy, that was revealed last week, would not be enough.

Asian shares took the full force of recessionary fears and the gloom spread to European trading.

The German Dax index slid 99 points to 7,314 while France's CAC 40 was down 65 points to 5,092 in the first hour's trading.

The Nikkei 225 Index of Japanese blue chips fell more than 3.5 per cent, while the Hang Seng declined by nearly 3 per cent in a grim afternoon session.

Much of the damage in Hong Kong was wrought by fears that the Bank of China may be on the verge of a substantial writedown of investments in the US mortgage market.

But the chief culprit, said brokers, appeared to be the inadequacy of President Bush stimulus package. The $140 billion (£71.8 billion) proposal was larger than most predicted, but a weekend of reflection caused many investors to conclude that it was not enough to insulate the US from recession.

Also, in Tokyo there were rumours that several large funds may have pulled out of Japan altogether.

“Even government ministers have begun to question the nation’s future status as an economic powerhouse, and the gloom has translated directly into 'sell orders',” said one Daiwa Securities broker.

Equally potent was the suggestion that the proprietary funds of several large European banking houses may also have sucked capital out of Japan in a hurry.

Funds worth as much as $4 billion are thought to have been closed down altogether as banks have liquidated their Japan positions to make up capital adequacy ratios at head offices in Paris or Frankfurt.

Lurking behind the day’s sell-off is growing panic that US-based bond insurance companies are facing ratings downgrades by the likes of Moody’s and Standard & Poor’s.

Without the highest quality endorsement of the ratings agencies, runs the logic, a whole tranche of investment capital committed to only triple-A rated assets will be forced to sell off the bonds insured by the downgraded companies.

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