Markets fall sharply worldwide

Hopes that the markets would rally on Monday were dashed when the FTSE 100 closed 7.85 per cent down - its biggest percentage fall in a day since 1987. The sharpest drops were in the banking and mining sectors.

Shares across Europe also fell. The German government, in an attempt to rescue its ailing DAX which fell 8.29 per cent today, agreed to a $68bn bailout for commercial-property lender Hypo Real Estate. Meanwhile in France the CAC-40 dropped 7.2 per cent after President Sarkozy announced he planned to speak to other European leaders to try and find a solution for the banking crisis.

The Dow Jones fared similarly badly, dropping to below the 10,000 point mark for the first time in four years. Earlier in the day Asian markets in China and Japan plunged amid concerns that America's $700bn bail-out bill will not stem the economic turmoil.

"It will probably be a rough week for global investors as they realise the credit crisis has a long way to play out," said a US-based analyst. "US action was an absolutely essential first step, and global intervention is needed."