London shares this morning fell through the psychologically-important 6,000 barrier after Tuesday's losses on Wall Street sparked a rout in Asian stockmarkets.

The FTSE 100 opened 76.1points lower at 5,949.5 - a level not seen since last August - when initial fears over the fall-out from the credit crunch triggered a severe sell-off.

Yesterday, the FTSE fell by 3 per cent as concerns over the US economy were fuelled by poor retail figures in America for December and dire fourth quarter trading from Citigroup, the banking giant which revealed an $18.1 billion writedown due to sub-prime mortgage investments, a $9.8 billion loss, a cut to its dividend and 4,200 redundancies.

It also emerged that both Citigroup and Merrill Lynch are seeking overseas capital injections, with three of Japan's largest banks poised to pump billions into the Wall Street casualties.

Hong Kong’s benchmark Hang Seng index tumbled 5 per cent, as the fears of US recession spilled over into Asian stock markets.

The index fell 1,295.5 points to 24,542.3, taking the Hang Seng in one session back to its level of mid-September and extending its loss so far this year to 11 per cent.

In Tokyo, the Nikkei 225 closed down 468.12 points, or 3.4 per cent, at 13,504.51. Brokers in Tokyo dubbed the frenetic session “redemption day”, as concern grew that a handful of funds may have collapsed – buckled by markets, particularly Tokyo, that have been steadily falling for weeks.

This week, said one Nomura broker, was already tipped to deliver carnage.

“The big global funds have had a couple of weeks now to assess how badly they were hit by the Japanese market last year. Some of them are just adjusting the weighting of their portfolios, but others are coming back from the holidays to find some major fund redemptions waiting for them,” he said.

But others said that the problem was simply a collapse of sentiment with little in the way of good news to prevent a full-scale sell-off.

Many fund managers complain that Japan is now virtually leaderless, following the sudden resignation of prime minister Abe last year and a series of scandals that have decimated successive cabinets.

“Everyone except for the Japanese government feels a sense of crisis,” said one Mizuho broker, “the markets just want to be told that the government can see there is a desperate problem here.”

Noting the dismal collapse of Tokyo stocks, Japan’s current Prime Minister, Yasuo Fukuda said that the government would “calmly monitor volatile stock movements,” adding that “I do not think the Japanese economy is deteriorating.”

Many economists disagree: “The Japanese economy is clearly deteriorating,” said Hiroshi Shiraishi, an economist at Lehman Brothers, who added that production growth – the mainstay of the Japanese recovery – may slow as global economic conditions worsen.

Japanese stocks, already pounded by a weakening US dollar and their heavy weighting towards exports, are also suffering the early effects of “kansei fukyo” – a recession caused by government policy error.

The main policy mistake blamed for Japan’s economic woes is a recent change to the building law that has effectively stymied construction projects across Japan.

It has been, say analysts, more destructive to the Japanese building industry than the US subprime crisis has been to the American housing market, and has created shockwaves throughout much of corporate Japan.

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