£62bn wiped off FTSE as it suffers worst fall in three years

The FTSE 100 Index lost 239.4 points which wiped more than £62.3bn from its value – with heavy losses for the banking sector, including taxpayer-backed banks Royal Bank of Scotland (RBS) and Lloyds Banking Group.

The latest slump was triggered by a gloomy report from economists at investment bank Morgan Stanley, which slashed its forecasts for global growth.
But eurozone debt fears, poor economic data in the US, and fears over China raising interest rates and limiting its demand, all played their part in the day’s rout.

‘Dangerously close to recession’

A report by Morgan Stanley added to the jitters when it said the global economy is dangerously close to a recession. The bank cut its global GDP growth forecasts to 3.9per cent in 2011 and 3.8 per cent in 2012, from 4.2 per cent and 4.5 per cent, respectively.

Fears about the strength of the world’s biggest economy were heightened by a rise in the number of US jobless claimants back above 400,000 while inflation saw its biggest gain since March.

And the Philadelphia Fed manufacturing index for August registered its biggest fall since October 2008 while existing home sales remained weak.

Banks woe

Every stock in the FTSE 100 Index fell in a bleak day of trading, leaving the risers board empty. Banks in the UK suffered another terrible day following reports that European banks are having their US divisions checked for contagion from the eurozone debt crisis.

Barclays was the biggest faller, down 11 per cent, or 20p to 154p. Royal Bank of Scotland was also down 11 per cent, or 2.8p at 22p, while Lloyds tumbled 9 per cent to 29.7p and HSBC was off 6 per cent at 509.6p.