FTSE 100 Index hits three-year low (From Your Local Guardian)

FTSE 100 Index hits three-year low

1:39am Wednesday 17th September 2008 in

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London's leading shares plunged to a three-year low as markets endured a second day of turmoil in the aftermath of the Lehman Brothers collapse.

The FTSE 100 Index fell 3.4% on top of a near-4% fall on Monday as investors continued to head for the exit.

Meanwhile, the Bank of England pumped £20 billion into frozen money markets - following the £5 billion injected on Monday - as banks fearing losses hiked inter-bank lending rates.

The move was echoed by the European Central Bank and the US Treasury amid hopes the US Federal Reserve could ease the pressure on banks with an interest rate cut later.

The market bail-outs came as the rate at which banks lend to each other for three months rose to 5.791% - the biggest single-day jump since the crisis at US investment bank Bear Stearns in March.

The Footsie briefly fell below the 5,000 mark for the first time since June 2005 before recovering some ground later to close at 5025.6 points amid late session hopes of a US Government rescue for insurance giant AIG.

But the two days of losses - the worst for the index since July 2002 - have wiped a total of £93 billion off the UK's leading shares.

France's CAC 40 and Germany's Dax also registered falls after Asian stock markets slumped overnight. Hong Kong's Hang Seng index was the biggest casualty, losing more than 5%.

AIG - massively exposed to the plunging US housing market - was granted a 20 billion US dollar (£11.2 billion) lifeline to shore up its finances. But the giant, which sponsors Premier League champions Manchester United, has been downgraded by three major ratings agencies, making it more expensive for the firm to raise funds.

AIG, which made a net loss of 13.2 billion US dollars (£7.4 billion) in the first half of this year, saw its shares tumble more than 30% in early Wall Street trading.