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Investment bank Lehman Brothers has been hit by rumours of a liquidity crisis, sparking a sell-off on Wall Street last night.

As the UK recovered from the shocks caused by Bradford & Bingley, the Dow Jones fell 0.81 per cent, while the Nasdaq was down 0.44 per cent.

Lehman Brothers fervently denied the rumours it was set to raise $4 billion (32 billion) to fill a hole in its finances caused by the credit crunch.

There was even talk a repeat of the Bear Stearns fire-sale could be on the cards.

As a result, the bank's share price fell 9.52 per cent at the close of trading.

Other banking stocks also fell.

Goldman Sachs was down 1.02 per cent, Morgan Stanley fell 1.04 per cent, Merrill Lynch fell 1.17 per cent and JP Morgan Chase slipped 0.62 per cent.

In London at opening, the FTSE 100 fell 1.08 per cent to 5992 in the first 15 minutes.

At 8:30 BST, early losers on the index included miner Eurasian (down 4.10 per cent), Vodafone (down 3.93 per cent), housebuilder Persimmon (down 3.51 per cent), National Grid (down 3.01 per cent), and HBOS (down 2.76 per cent).

Some early gains were noted – with British Airways up 1.84 per cent and Compass Group rising 2.01 per cent.

British American Tobacco rose 1.06 per cent 1.06 per cent and Royal Bank of Scotland was up 0.92 per cent.