London's FTSE 100 index closed 3 per cent down following its worst day's trading in four months after British investors remained unconvinced that yesterday's unprecedented $110 billion (£53.9 billion) lifeline will fight off a recession.

The FTSE fell through 6,400, closing down 195.6 points at 6,364.2 - the worst close since early August - as the market digested news of the American-led cash injection which will see the US Federal Reserve, the Bank of England, the European Central Bank and the central banks in Switzerland and Canada auction off billion of pounds worth of funds to financial institutions.

American investors also appeared unappeased, sending the Dow Jones industrial average down 78.9 points to 13395.

Although stock markets failed to act favourably, the cost at which banks lend money to each other saw the cash injection as a positive move.

The one-month London Interbank Offered Rate (Libor) fell from 6.74 per cent to 6.6 per cent - the lowest point since September 19 - while three-month Libor fell from 6.62 per cent to 6.5 per cent.

The Bank of England will offer £11.35 billion in funding to banks on December 18 and January 15.

In Europe, the cost of borrowing fell marginally, with the one-month rate falling from 4.9 per cent to 4.9 per cent and the three-month rate declining 4.95 per cent to 4.94 per cent.

The American interbank borrowing rate for one-month declined 5.1 per cent to 5 per cent and for three-months, it declined from 5 per cent to 4.99 per cent.

The Bank of England's Monetary Policy Committee cut UK base rates by 0.25 per cent to 5.5 per cent last week.

The Bank joined a group led by the US Federal Reserve in plans to dampen pressures on markets that threaten to drive up interest rates for households and companies around the world.

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