Nearly £60 billion was wiped off the value of Britain’s blue-chip companies yesterday after mounting fears of a global credit crunch sent shares plunging as world stock markets endured a deepening rout.

The FTSE 100 index of London’s leading shares slumped by more than 4 per cent, suffering its steepest one-day percentage loss for nearly 4½ years, as it shed more than 250 points in frenzied dealing.

In points terms, the drop in the blue-chip benchmark was its fourth-biggest ever, and eclipsed even that suffered on Black Monday in 1987.

The index was pushed back below the watershed of 6,000 as its latest day of bloody trading conditions saw it finish the day at 5,858.9, its lowest close since last September.

The FTSE’s latest battering in a brutal month for stock markets on both sides of the Atlantic came as increasingly fearful investors around the globe bail out of shares for the safe havens of government bonds and cash.

The rapid retreat from almost all forms of financial risk now threatens to become a headlong stampede as investors are gripped by anxieties over a steadly worsening crunch in corporate lending markets.

Yesterday’s new losses by London shares and US blue chips on Wall Street left leading stock markets worldwide in the grip of what is now a full-blown “correction” – defined as falls from peak levels of 10 per cent or more, although this is not yet regarded by experts as a crash.

From its high of 6,732.4 on June 15, the FTSE 100 index has now plummeted by 13 per cent, erasing £220 billion from share values. Some £128 billion has been wiped off the index since last Wednesday alone.

US stock markets also skidded into correction territory yesterday, before shares later clawed back ground. By early afternoon in New York, the Dow Jones industrial average was down more than 264 points, or 2.05 per cent from Wednesday’s close, leaving it more than 10 per cent below record highs above 14,000 reached in July.

But in a glimmer of hope for shell-shocked investors the Dow later rebounded in late trading, slashing yesterday’s losses to close down only 15.69 points, at 12,845.78.

Earlier, as pressure mounted on the the US Federal Reserve and other central banks to step-in with interest rate cuts to steady markets, economists and investment analysts sounded warnings that the turmoil is set to persist. Some even spoke of global recession.

“People are now starting for the first time to think that this could end in recession, not just in the US, but globally,” Albert Edwards, global strategist at Dresdner Kleinwort, the investment bank, said.

Mark Cliffe, chief economist at ING, described market conditions as “ugly”. “If this goes on day by day it is increasingly likely to have real economic consequences.”

Tobias Levkovich, equity strategist at Citigroup, the world’s biggest bank, said that September could see still worse upheavals. “For those looking for relief next month, keep in mind that September has the dubious distinction of being the worst month when considering average performance.”

The rapidly worsening global “credit crunch”, sparked by a crisis in the US “sub-prime” home loans sector, has left banks and other key financial groups increasingly unwilling to lend to each other amid fears over hidden losses. Growing alarm has triggered sharp jumps in interest rates, forcing some institutions to shut down investment funds and declare losses.

As these casualties have mounted, an even tighter squeeze on the availability of loans has threatened to see markets completely seize up, forcing the Fed and European Central Bank to inject billions in funding into markets to prevent this.

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