“It’s as though we’ve hit an air pocket and there’s nothing to hold up prices,” one senior trader said yesterday, as shares suffered their biggest decline since September 11, 2001. “This is closer to Black Monday, 1987,” he added. “There’s just a complete change of sentiment”.

The only bright spot for bulls was that volume was relatively low because America was on holiday. But the 323.5 point fall in the FTSE 100 to 5,578.2 leaves London’s leading index at its lowest level since June 2006.

Miners, until recently one of the props of the London market, led the rout as the fear that a recession in the United States and Europe would hit demand combined with worries that BHP Billiton may walk away from its bid for Rio Tinto. BHP lost 143p to close at £12.35, while Rio fell 472p to £42.28.

Even Xstrata, initially up on talk that Vale, of Brazil, was preparing a bid, lost ground, falling 184p to £31.74, after Vale said that it was in talks but played down the chances of a bid.

Banks were also responsible for much of the collapse amid worries over the extent of their exposure to US bond or monoline insurers. Dexia, the Franco-Belgian bank, has detailed €12 billion assets exposed to guarantees provided by Ambac. Citigroup has already taken a writedown because of exposure to one of the smaller bond insurers. “No one knows how much they and other investment banks are exposed to the bigger ones,” one dealer said.

Royal Bank of Scotlandfell 30½p to a seven-year low of 342¾p, while Lloyds TSB closed down 27¾p at 373½p.

Tui Travel, the holiday group, was another heavy faller, off 18¾p to 206¼p. It is due to unveil trading figures next Tuesday. Stuart McLeod, the manging director of Crystal Holidays, its ski brand, is understood to be leaving in a reshuffle. Ski resorts are among the first to suffer in a recession.

Those shares already hit hardest - housebuilders, property and retailers – were least-affected yesterday. Taylor Wimpey and Hammerson ended up 2.6p at 183.7p and 2p at £10.56 respectively. Lehman Brothers said that it expected property prices to bottom out, which will lead the property sector to rise.

Friends Provident rose 5½p to 158p after JC Flowers declared that it was considering a bid. Resolution closed up ½p at 712p thanks to the agreed 720p bid from Pearl.

Oil, the other FTSE support, failed to offer stability as oil prices succumbed to US recession fears, leaving Cairn Energy down 218p at £22.99, BP down 35p at 519p and Shell off 108p at £17.75. BP has already guided analysts that its fourth-quarter figures will be far below expectations.

In the FTSE 250, Northern Rock shot up 29¾p to 94¼p on hope that the Government’s rescue plan would secure its future. New Star Asset Management bounced 5½p to 106¾p after its sell-off that came in the wake of a profit warning last week.

Autonomy, another stock that until now had been relatively immune to credit-crunch and recession fears, lost 133p to 830p. Venture Production, the oil company that recently slashed its production forecasts for 2008-09, fell another 81½p to 601½p. Premier Oil lost 137p to £11.61.

New York: Wall Street was closed.

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