London's leading shares were trading at a subdued level today as fears over the global economy resurfaced and overshadowed the US Government's $200 billion bailout of Freddie Mac and Fannie Mae, the mortgage debt giants.

The FTSE 100 index 27.4 points to close at 5,418.9 after rising nearly 4 per cent yesterday before the London Stock Exchange was suspended for over seven hours due to a "connectivity issue".

In the US, the Dow Jones industrial average fell 280 points to close at 11,230.

The slump contrasted with Monday’s activity, when the Wall Street reacted positively to the US Government’s decision to prop up the housing industry by injecting up to $200 billion into Freddie Mac and Fannie Mae, the mortgage giants. The Dow Jones rose 2.05 per cent in reaction to the rescue deal.

Shares in Fannie Mae and Freddie Mac rebounded slightly initially after falling 90 per cent and 83 per cent, respectively, on Monday, on investor concerns the Government’s cash injection would dilute their ownership of the groups.

At close Freddie’s shares were up by 6.82 per cent to 94 cents, while Fannie Mae's rose by 31.51 per cent to 96 cents.

Shares in AIG, the world's biggest insurer, fell 19 per cent on fears that the company's large exposure to the mortgage markets could trigger the need to raise fresh capital. AIG's stock was down $4.39 at $18.37.

Shares in Lehman fell by $6.25, or 44 per cent, to $7.90 in mid-day New York trading as investors worried about the group’s financial outlook after a promising potential source of much-needed capital from the Korean Development Bank evaporated.

London's subdued trading was in marked contrast to heavy losses in Asia where stock markets in Japan and Hong Kong retreated sharply as investors sobered up from the previous day’s euphoria and sold heavily on warnings that the worst is not over.

Both Japan's Nikkei 225 and Hong Kong's Hang Seng took a battering in a frenzy of quick profit-taking from Monday’s global rally.

The Nikkei fell 1.7 per cent to 12,400.65, while in Hong Kong, the index declined by 1.46 per cent to 20,491.11.

Japanese shares were hit by a broad rout of the banking and insurance sectors. A rise in the yen provided an excuse for a sell-off of major exporters, of which Honda was particularly savaged.

Also on the ropes were Japan’s listed real estate companies, which are showing extreme vulnerability to the recent drop-off in the housing and commercial property markets. Japan’s big transport companies, whose profits are likely to be hit by continuing declines in shipping rates, also found themselves flooded with sell orders.

Traders at Tokyo Mitsubishi UFJ in Tokyo said that just 24 hours after the US bailout of Fannie Mae and Freddie Mac, the chief concern for investors is that the message was anything but positive: it amounted to an admission that the US has a huge problem, rather than a definitive solution to everything that threatens growth in the world’s largest economy, said one.

Hiroichi Nishi, head of equities at Nikko Cordial Securities, said that the US worries have not subsided: “There is a view in the market that we still cannot go as far as to say that US housing prices have hit bottom,” he said.

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