The FTSE slid 1.6 per cent by midday today after the subprime mortgage crisis claimed more victims in the United States and Australia, crimping investors' risk appetite and hurting global equities.
American Home Mortgage Investment Corp. and two Macquarie funds were the latest victims of the credit crunch sparked by the deterioration in the US lending market that threatens to spread to the wider economy.
At 12:05 p.m., the FTSE 100 was down 98.4 points at 6,261.7, but well off its day's low of 6,187.2, at which point the benchmark had lost about £42 billion in value. European shares also fell.
Persistent fears over credit markets had led to a 3.8 percent loss in the UK benchmark index for July.
UK-listed financial shares took a lashing, after HBOS's forecast-beating 13 percent rise in profits was overshadowed by a fall in its core UK retail banking profits and concern that group earnings were swelled by asset disposals in its Corporate unit. HBOS tumbled 5 percent.
Elsewhere in the banking sector, Royal Bank of Scotland dipped 2.7 per cent, HSBC dropped 1.3 percent and Barclays shed 3.6 per cent.