Royal Bank of Scotland lost a fifth of its value, dropping to its lowest level for more than ten years amid growing fears about its exposure to toxic debt and worries that its auction of assets would fail to raise the £4 billion it needs.

Standard & Poor’s added insult to injury, bringing RBS’s credit rating down a notch with a negative outlook and warning that “difficult market conditions in which to complete its capital transformation plan leaves RBS less well positioned than some of its major global peers”.

RBS has been trying to sell its Churchill Insurance and Direct Line businesses, but, at the £7 billion price it needs to bolster its capital reserves, takers seem thin on the ground. On top of that, doubts continue to grow that RBS can integrate its portion of ABN Amro without big write-offs. The Dutch part of ABN Amro, bought by Fortis, was sold yesterday by the Dutch Government at a 63 per cent discount to its €24 billion (£18.6 billion) book value. RBS fell 38.1p to 148.1p.

Barclays, down 54p to 314p, was another to suffer as investors worried about investments in toxic credit derivatives. Sandy Chen, of Panmure Gordon, said both banks had large potential exposures to $400 billion of default claims by creditors of Lehman Brothers and $50 billion in claims from creditors to Fannie Mae and Freddie Mac. Settlement auctions, which will determine the amount that must be paid out to creditors for Fannie and Freddie assets, were being held yesterday while Lehman’s settlement auction is due on Friday.

The FTSE 100 lost 391.1, nearly 8 per cent, to 4,589.2 with every stock in the red. BP fell 38p to 429¾p, levels it last reached when oil was $30 a barrel.

Fears of an economic slowdown in China – late on Friday China cut steel production at several key plants – and a recession in Europe and the US meant mining stocks were even worse hit than banks. Kazakhmys, the Kazakhstan copper miner, fell below its 540p float price for the first time, losing 151¼p, or 27 per cent, to 417¾p as Merrill Lynch reduced it from “buy” to “underperform”. Analysts from UBS also pointed out that half its reported cashflow came from dividends from its 25 per cent stake in fellow Kazakh miner Eurasian Natural Resources, which lost 130p to 425p. UBS cut its earnings predictions next year for all UK-listed miners by 40 per cent. Xstrata fell 323p to £13.57, while Antofagasta lost 66½p to 313¾p.

Ferrexpo, the Ukrainian iron ore miner, lost only 2½p to 115p after JPMorgan made a margin call on a loan to its founder Konstantin Zhivago, forcing the sale of 21 per cent of the company it held as security. It was bought by the group that controls Czech coal group New World Resources for a discount 80p a share.

In the FTSE 250, short closing as hedge funds met margin calls meant Johnston Press, up 9¼p to 49p, was the solitary gainer. Of the 249 fallers, Taylor Wimpey lost 7p to 27¾p after Fitch cut its credit rating and warned it may not complete debt talks before repayment was due in February.

— New York: Wall Street stocks continued to slide, with the Dow Jones industrial average falling to levels not seen since 2003, fuelled by fears that the economy would not avoid recession. At the close the Dow Jones industrial average was 369.90 points lower at 9,955.50.

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