Growing doubts that China's economic stimulus package presented much new information led London's leading index back down yesterday.

Banks were the worst performers as Morgan Stanley predicted Britain's economy would shrink by 0.3 per cent next year and as Standard & Poor's gave warning of a raft of European bank debt maturing this year.

HSBC was one of the worst hit, down 7 per cent as data from South Korea showed the capital strength of the country's banks at their weakest level since 2001 and Fitch, the credit rating agency, downgraded the country's credit rating to negative. The UK bank was also hit by downgrades from brokers following lacklustre figures yesterday.

Merrill Lynch cautioned that the US was the Achilles heel for HSBC, sayiing it would have to write off some $14 billion for bad US mortgage loans.

Lloyds TSB was down 7 per cent, hit by worries over how digestible HBOS might be. HBOS fell 5 per cent as investors gave up on chance of a bid from Bank of China.

The FTSE 100 Index retreated 87 to 4316 by 10.25am.

Morgan Stanley forecast 2009 GDP growth to drop by 0.3 per cent. The brokerage had previously forecast zero percent growth.

Oil stocks, such as Tullow Oil, down 5 per cent, were also on the slide as the oil price fell back.

InterContinental Hotels lost 5 per cent to 514p, after reporting a drop in third-quarter profit as sales in October slowed.

Taylor Wimpey dropped 5.7 per cent to 12.5p after saying orders have fallen 40 per cent as it continues to negotiate new loan conditions with lenders.

But Vodafone added 7 per cent to 116p as it said it would keep to its profit targets by cutting costs, despite weaker revenues.

Cookson Group, the world's biggest maker of moulds for steelmakers, said it will miss its targets as metal makers cut production to counter slowing demand. It lost 12 per cent to 151p.

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