Shares were hammered yesterday as a sharper than expected interest-rate cut scared investors about just how bleak 2009 could prove to be.

Stocks were also hit by growing concern about the global economy, a string of bad corporate news and fears that the cut of 1.5 points, to 3 per cent, in UK base rate would not be passed on by the stricken banking system.

The FTSE 100, which got off to a bad start after heavy losses in the US and Asia overnight, plunged by 258.32 points, or 5.7 per cent, to 4,272.41.

Mining stocks were, for a second successive day, responsible for most of the loss, because of global growth worries, although there were heavy losses across the board, with only six blue chip stocks ending the session higher.

Vedanta Resources, the worst-hit miner, fell 186½p, or more than 20 per cent, to 721½p as the India-focused group reported a sharp drop in first-half profits and said that it may curb production and rein in spending as a result of lower metal prices. Eurasian Natural Resources fell 69¼p, or nearly 20 per cent, to 289¾p, with analysts pointing to an expected collapse in ferrochrome prices despite production cuts. There were also heavy losses for BHP Billiton, down 171p at 969p, Rio Tinto, 442p lower at £25.06, and Anglo American, which fell 231p to £13.26.

Man Group was the FTSE’s biggest faller, down by 122¼p, or more than 30 per cent, to 270p, after a trading update showed that funds managed by the hedge fund manager were much below the group’s previous guidance because of the market turmoil.

The cut in base rate failed to cheer banks. Barclaysfell 12.2p to 183.7p and Royal Bank of Scotland ended off 5.1p at 63.9p as Credit Suisse analysts said that things were getting worse for the sector more quickly than they had expected and that there would be more bad news, with its weekly credit availability index at a record low.

Marks & Spencerwas the day’s biggest riser, up 8p to 252¾p, boosted by the rate cut, with Nick Bubb, the Pali analyst, saying that the cut would take nearly £50 million off the retailer’s interest bill next year.

Old Mutual, the insurance group, rose 1.7p to 55.3p, as Julian Roberts, its new chief executive, attempted to draw a line under the woes of its American division. As well as offering reassurance on its capital position, Old Mut’s new chief made clear that he was prepared to sell off assets in order to narrow the chasm between the insurer’s share price and its estimated break-up value. The shares trade at a discount of up to 50 per cent of most brokers’ fair-value estimates.

Commercial property groups were hit after analysts in Morgan Stanley suggested that share prices in the sector could fall by another 42 per cent because of rising concerns over debt. The broker reduced its price targets across the sector, with Hammerson worst hit, falling 74½p to 715p.

FTSE 250 housebuilders made gains on the rate cut, with Persimmon up 14p to 337¾p and Bellway putting on 9½p at 569p. However, Taylor Wimpey fell 1¾p to 13½p, with industry-watchers doubting that the rate cut would rejuvenate the housing market.

— New York: US stocks were sold off in their worst two-day slide since 1987 as poor corporate outlooks and bleak sales figures from retailers fuelled fears of a deepening economic downturn. The Dow Jones industrial average closed down 443.48 at 8,695.79.

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