London's leading shares today tumbled by 134.1 points as the pound slid to its lowest level against the dollar since July 2006 and fears rose another Wall Street bank is close to collapse.

The FTSE 100 index of blue chip stocks fell to 5,373.4 points in early trading, after investors were also spooked by a warning from the Bank of England's Deputy Governor, Charles Bean, that the current slowdown will continue for a "considerable time".

The index was dragged down by mining companies after the price of copper in China slumped while the dollar strengthened against sterling, sending the pound down to a two-year low at $1.84.

Today's fall in the FTSE follows a torrid day in the US yesterday when the Dow Jones industrial average closed 2 per cent lower, on speculation that another investment bank is set to follow in Bear Stearns footsteps, and seek a bail-out to stop it from going under.

British investors were also unnerved by comments on the UK economy from Mr Bean who said yesterday: "We have our fingers crossed but there is the recognition there is still quite a long way to go yet.

"There are periods when markets look like they are getting better. Then another grenade explodes, another bout of fear of sustainability of some financial institutions, maybe intervention by the authorities. It has been very much ebb and flow ... ."

It also emerged today that German business confidence slumped to a three-year low during August, building on fears that Europe's largest economy is edging closer to recession.

According to Ifo Institute's business climate index, confidence fell from 97.5 in July to 94.8 in August, below expectations of a fall to 97.2.

Earlier this month, the economy in the 15-country region shrank for the first time since the single currency was introduced nearly a decade ago.

Eurozone output contracted by 0.2 per cent in the three months to June, after a 0.7 per cent rise in the first quarter, official figures showed.

Activity was dragged down by falling gross domestic product in the area’s traditional economic mainstays of Germany, France and Italy as consumers and businesses struggled with the soaring cost of fuel and energy

There is concern that Germany's economy may not grow in the third quarter, marking a second quarter of contracting GDP - the technical definition of a recession.

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