BHP Billiton echoed the recent warning of its bid target Rio Tinto this morning, saying that Chinese growth had softened during the quarter to the end of September. "We expect volatility and uncertainty to continue in the short term," it said.

BHP dropped 7 per cent to 900p and thee mining sector dragged the FTSE 100 down1.8 per cent, or 77 points, to 4152.71 by 10.17am.

Those regarded as particularly dependent on China were worst hit, with Vedanta Resources down 10 per cent to 643.5p and Kazakhmys off 9 per cent to 277.5p.

Rio Tinto gained in Australian trading and at the open of London on talk that the EU might give its prelimanary decision as early as today on the takeover by BHP. It has been expected before end of October and a final decision will be made in January. But any hope that the EU would give the deal an immediate thumbs up soon faded and Rio dropped 6 per cent.

Royal Bank of Scotland was again on the slide after Mervyn King, the Bank of England Governor, gave warning that the UK was in recession. Analysts at Keefe Bruyette and Woods slashed their target price on RBS from 230p to 85p and on HBOS to 106p. RBS lost 9 per cent to 72.5p although it is above the price at which the Goverment will subscribe for shares.

The plunging pound against the dollar helped those with mainly dollar earnings such as Wolseley, up 1 per cent, Man Group, up 1.4 per cent and Diageo up 1 per cent.

But Kingfisher, owner of B&Q, dived 9 per cent after Home Retail Group wrote £542 million or two thirds off the value of its Homebase chain and warned that sales had dropped in recent weeks. Home Retail dropped 2.3 per cent.

WPP lost another 6 per cent after Collins Stewart cautioned yesterday that it had been hit by a sudden drop in orders from advertisers in recent weeks and after Omnicom warned last night of the same problem.

Aviva fell 6 per cent to a 20-year low of 281.75p as it emerged it had dramatically raised exit penalties for with-profit policyholders in a bid to prevent a stampede of redemptions.

RSA lost 6 per cent on fears it would be faced with a similar problem.

The London Stock Exchange fell 11.5 per cent to 518p after a US clearing house DTCC bought London-based LCH.Clearnet for $975 million. It is promising a global clearing house for settling equities trades, and cheaper fees, than rivals Deutsche Borse which owns Eurex Clearing and CC&G, the Italian clearing house owned by LSE.

MF Global analysts said the deal was bad news for the LSE and reiterated their sell and 555p price target.

BSkyB lost 10 per cent to 362.25p after it went ex-dividend and after a report showed many subscribers would cancel their subscription in the event of a recession.

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