Shares in London and Asia fell sharply overnight amid growing doubts about how a $700 billion (£378 billion) US government financial bailout will be able to shore up confidence in America’s economy as it slips into recession.

In London the FTSE 100 index plunged 148.76 points by lunchtime to 5,087.5 after losing 75 points yesterday. The brunt of the fall was in bank shares as investors became increasingly nervous about the prospects for the proposed rescue of HBOS by Lloyds TSB. Bradford & Bingley shares also fell 12 per cent as fears about its future re-emerged.

In Asia, Hong Kong’s Hang Seng index closed down 3.87 per cent at 18,872.85 after gaining more than 11 per cent in two days.

The MSCI index of Asia-Pacific shares excluding Japan fell nearly 2 per cent while Australia’s benchmark S&P/ASX 200 index ended down 1.9 per cent at 4,923.5. Japanese markets are closed for a holiday.

Overnight, the Dow Jones industrial average plunged 372.80 points to 11,015.70.

On the currency markets, the US dollar stabilised after dropping to a six-month low against the euro yesterday over fears of the impact on the US budget deficit of the plan that Henry Paulson, US Treasury Secretary, is seeking to push through Congress.

Mr Paulson will argue the case for the package, which would allow the US Treasury to buy toxic mortgage-backed assets, on Capitol Hill today. He is expected to face opposition from members of Congress about how to pay for the plan.

Mr Paulson believes that, without the speedy rescue package, the American banking system faces meltdown. In a worrying development, other struggling American industries outside Wall Street began to ask for similar assistance. Measures adopted at the end of last week to stem banking share price falls by banning short-selling temporarily were requested by car and real estate companies.

However, Senator Richard Shelby, the leading Republican on the Senate Committee on Banking, Housing and Urban Affairs, said in a statement yesterday that the US Treasury’s proposal was “neither workable nor comprehensive”.

In a statement, the senator said: “I am concerned that the Treasury’s proposal is neither workable nor comprehensive, despite its enormous price tag. In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted, and may actually cause the Government to revert to an inadequate strategy of ad hoc bailouts. Given that markets have recently taken confidence in the prospect of government involvement, I believe Congress must immediately undertake a comprehensive, public examination of the problem and alternative solutions rather than swiftly pass the current plan with minimal changes or discussion. We owe the American taxpayer no less.”

Mr Shelby’s position represents a severe blow to Mr Paulson, the architect of the rescue, who had hoped the required legislation would be passed on Friday, but has been overwhelmed by lawmakers in Washington who are bickering among themselves to have their measures included in the bill.

Dominique Strauss-Kahn, the managing director of the International Monetary Fund writing in the Financial Times today, said that while he welcomed the US plan, global steps would be required to resolve the turmoil that has rocked financial markets.

He called on other major economies to follow the US lead with rescue packages and said that “substantial fiscal adjustments may be required” to deal with the mammoth costs of dealing with it.

“Vigilance, objectivity and collaboration on a global scale will be needed to deal with the challenges ahead,” he said.

In morning trading today, crude oil and commodities, including gold and platinum, were all lower after posting big gains late on Monday.

The price of a barrel of US light crude for November delivery dipped by nearly $3 to $106.58 per barrel while London Brent crude fell $2.29 to $103.75 as traders locked in profits, following the dramatic surge in prices that took place in New York trading on Monday.

One key US contract - West Texas Intermediate crude oil futures for October delivery - closed yesterday up more than $18 a barrel at $122.60, although the price briefly spiked as high as $130.

Since touching an all-time high of $147 on July 11, the price of crude had fallen sharply amid expectations that global demand was easing.

Oil demand in the United States is around 4 per cent below last year.

But some analysts have predicted that if the Paulson plan succeeds, the global economy could recover faster than expected.

Others are viewing oil and other commodities as a currency hedge against a falling dollar.

Gold fell back to around $892 per ounce, having glanced a high of $908 on Monday, its highest level since early August.

The price of platinum eased to $1,202 an ounce from highs of $1,255 when it posted its biggest one-day gain in 23 years.

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