Banks and retailers were worst hit as reports of a government bailout for US mortgage firms Fannie Mae and Freddie Mac and speculation about weaker than expected third-quarter results from Lehman Brothers shook the market.

The Footsie ended the day down 129.8 at 5320.4, with former IMF chief economist, Kenneth Rogoff, adding to the worries by warning that a large US bank could collapse in the next few months.

UK banks had been showing tentative signs of improvement in recent days, but the blow to confidence meant the sector accounted for a large slice of today's losses.

Halifax Bank of Scotland was worst hit, losing more than seven per cent or 22p to 277.5p. Barclays slipped 18.5p to 324.25p, Royal Bank of Scotland fell 13.5p to 215p and Lloyds TSB eased 17.75p to 288.25p.

Insurers did not escape, with Legal & General falling 7.2p to 95.9p.

Among the consumer-facing stocks worse off were Marks & Spencer, down 16.5p to 255.75p, and Wolseley, which dived nearly nine per cent, or 36.75p to 389.5p - making it the top flight's biggest casualty. B&Q owner Kingfisher joined the slide, falling 8.1p to 120.1p. Property stocks were also lower after warehouse specialist Brixton reported half-year losses and gave an insight into the turmoil facing the market, particularly the current confusion over valuations.

Brixton - a FTSE 250 Index stock - fell nine per cent or 23p to 224.75p, while in the top flight Hammerson slipped 61p to 862p and British Land eased 45p to 704p.

The weaker sentiment caused by Brixton's results also impacted housebuilders in the FTSE 250, with Persimmon down 21p to 311p ahead of half-year results later in the week. Barratt Developments was off 7.75p at 121.5p and Taylor Wimpey fell 3.5p to 43.25p.

Newspaper group Trinity Mirror fell 10p to 100.5p and Johnston Press dropped 5.5p to 54.5p, a decline of ten per cent, as investors dived for cover amid the uncertainty.

Defensive-looking stocks attracted buying interest in the FTSE 100 Index, with medical devices firm Smith & Nephew ahead 13.5p at 632p and power generation firm Scottish & Southern Energy 14p stronger to 1453p.

In the FTSE 250 Index, satellite communications services firm Inmarsat surged 10.25p to 498.25p on the successful launch of its third Inmarsat-4 satellite.

The current constellation of two satellites delivers mobile broadband services to 85 per cent of the world's landmass and covering 98 per cent of the world's population.

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