Central bankers around the world waded in to support the global banking system again today as stock markets plunged on fears of a massive credit crunch.

On Wall Street, the Dow Jones gave up as much as 200 points in early trading. It later made good some of those losses on news that the US Federal Reserve had injected a fresh $35 billion (£17 billion) into the money markets. Globally, central banks pumped some $120 billion of extra liquidity into financial markets in efforts to avoid an all-out collapse.

Nevertheless, almost £56 billion was wiped from the value of London’s largest companies. The FTSE 100 Index fell more than 3.7 per cent - its biggest percentage decline in more than four years, as the crisis in the American sub-prime mortgage market spilled into other classes of assets.

The FTSE 100 closed 232.9 points lower at 6038.3 - its lowest close since March last year.

The FTSE 250, which includes smaller companies and is often seen as a better indication of the state of the UK economy, was 303.6 points lower at 10,908.5.

In an effort to calm the markets it is understood that the US Federal Reserve injected $19 billion into the financial system in a first operation, which was followed by a further $16 billion in a second. Yesterday it provided an estimated $24 billion (£12 billion). The Central Bank of Canada also intervened in money markets.

Those actions followed the lead of the European Central Bank which earlier today lent €61 billion (£41.3 billion) to the eurozone banking system, in addition to the €95 billion it provided yesterday to 49 banks in unprecedented emergency action by the Frankfurt-based institution. It was the highest level of support since that provided in the aftermarth of the 9/11 terrorist attacks on America.

The ECB's move takes the form of a series of 3-day loans, which need to be repaid on Monday.

The latest ECB injection brings to more than £135 billion the amount central bankers have pumped into the system in the past 24 hours. Requests by banks for a further €49 billion of ECB loans were left unsatisfied.

Overnight, the Bank of Japan injected the equivalent of £4.1 billion, and the Reserve Bank of Australia pumped in A$4.95 billion (£2.1 billion).

But these failed to stop panic selling around the world. London's blue chip shares continued to fall sharply today. By mid afternoon the FTSE 100 index, which had fallen more than 200 points, was 190 lower in heavy trading.

France's CAC-40 index was down 1.21 per cent, at 5,559.68. Germany's DAX index was down 1.29 per cent at 7,357.58.

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