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The FTSE 100 fell 2.6 per cent today as recent optimism flowed away.

At close of play the index of top 100 firms stood at 5518.20 – the lowest level since March.

Few gains were made – with miner Lonmin breaking the mould rising three per cent, while Cairn Energy rose 1.55 per cent, Angle American rose 0.55 per cent and Royal Dutch Shell 'A' rose 0.05 per cent.

London Stock Exchange led the sell off down 12.97 per cent, followed by Invensys, falling 9.33 per cent.

Barclays fell 8.23 per cent, British Airways failed to take off falling 7.75 per cent and ITV dropped 7.44 per cent.

The sell-off was led by more rumbles over the banking sector.

Ryan Kneale, market analyst at City bookmaker BetsForTraders.com, said: "Bad news strikes again in the banking sector and fear stricken traders are once again aggressively selling banking stocks.

"The markets are like a tight rope walker at the moment. Every time they seem to find their balance and take a few cautious steps, someone comes along and gives the rope a shake."

David Jones, chief market strategist at IG Index, said: "Investors are still seemingly chewing fingernails over the economic prospects both here and in the US, with questions being asked over just what will come and calm the nervousness.

"Many eyes will be watching the Fed to see if its focus shifts to inflationary pressures over the second half of the year, meaning a likely interest rate hike. And these concerns, coupled with gloomy comments from Bank of England Governor Mervyn King, that he has little room to cut interest rates in the UK, have negativity pounding down on the markets like a summer storm.

He added: "As the FTSE limps towards the end of the week, it remains to be seen whether investors can find enough or any positive sentiment to attempt to begin a turnaround any time soon."