You get to the point when you wonder how you might start yet another story of crashing markets and financial doom and gloom. The American dime novel, perhaps, or a cheap Gatwick paperback: it was a dark and stormy night and another wave of fear came crashing across the Atlantic and washed over London stocks.

Or a pastiche of a certain Norwegian football commentator turning his attention to Blighty’s punchdrunk banks and miners: “Lord Nelson, Lord Beaverbrook, Sir Winston Churchill, . . . Henry Cooper, Lady Diana . . . Maggie Thatcher, can your hear me? . . . your boys took one hell of a beating.”

Amid the waves of fear and beatings, the FTSE 100 closed below the 5,000 mark for the first time in more than three years, falling 113.2 points to 4,912.4, making a near 10 per cent loss in the index in three days. The volatility and massive volumes were driven by the continued unwinding of Lehman Brothers’ positions, while traders in London began betting that a merger of Lloyds TSB and HBOS would fail to restore confidence. HBOS led the market down, closing off 34.9p to 147.1p, while Lloyds ended flat at 279¾p.

And as if to add insult to injury, an announcement by the US Securities and Exchange Commission that it was imposing new rules to prevent abusive short-selling helped to drive a huge quantity of short-selling in both London and New York.

Investors in the mining sector were forced to seek sanctuary as the recent cave-in of the sector continued. Producers of base metals suffered as the smart money headed into precious metals. Kazakhmys, dogged by fears over rising taxes, slipped 179p to 630p, making a 68 per cent fall since May. Xstrata and Antofagasta, both of which went ex-dividend, fell 179p to £19.26 and 35p to 423¼p, respectively. Lonmin recovered 91p to close at £26.33 and Johnson Matthey was up 15p at £13.39. Randgold Resources rebounded 138p to £19.38. Hochschild, the silver miner, rose 9¾p to 207¾p.

Only supermarkets and insurers held on to early gains. Tesco was up 14.2p at 372.8p and Wm Morrison closed up 10p at 256½p as both rebounded from hefty recent falls. Legal & General rose 1.4p to 89.9p and Admiral added 2p to 859½p.

The AIG rescue also appeared to reassure global financial markets, driving a modest recovery in oil prices to around $92, which pushed British Airways back down 15½p to 243p. Goldman Sachs, which in May predicted that oil would reach $150 a barrel by the end of the year, cut its three-month ahead target from $150 to $115.

Mecom, the continental European newspaper group, bounced back 12p to 22½p, recovering the previous day’s losses, when Lehman sold a stake at half the market price. Moneysupermarket, which gave warning over squeezed margins in August, fell 6p to a new low of 53¾p as it went ex-dividend.

The crisis of confidence in Russian stocks, which led to a halt in trading in Moscow for the second day in a row, hit ITE, the exhibitions organiser that specialises in Russia. It fell 19¾p to 120p.

New York: Wall Street’s woes continued as a spike in inter-bank lending rates fanned fears about the supply of credit in global markets. At the close the Dow Jones industrial average was down 449.40 points at 10,609.70.

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