More than £63 billion was wiped off London’s main stock market yesterday as panicked investors rushed to pull out their cash amid fears of a mounting crisis in global financial markets.

The FTSE 100 index of leading shares in London suffered its worst fall in seven years despite central banks around the world taking the unusual move of pumping $323 billion (£159 billion) cash into the system to ward off fears of a widespread credit crunch.

In recent weeks, global markets have been rocked by news of problems in banks and funds linked to risky investments in US mortgages and private equity funds, sparking fears of an end to the era of cheap credit that has fuelled global growth.

Gordon Brown said yesterday: “There will always be issues in the markets and of course we cannot insulate ourselves from events that are happening in all parts of the world. I think the important message to be said about the British economy is that we have done everything in our power and will continue to do everything in our power to maintain the stability of the British economy.”

Observers had hoped that the market would be able to weather the storm and that things would calm down over the summer holiday, ready for a fresh start in September. But the jitters persisted this week, as several European financial institutions, such as BNP Paribas, the French bank, admitted that they had suffered losses as a result of exposure to the US mortgage market.

A day after injecting an unprecedented €95 billion (£64 billion) into the markets, the European Central Bank said yesterday it would stump up an additional €61 billion as fears over large banking losses linked to US mortgages refused to abate.

Professor Geoffrey Wood, an economics expert at the Cass Business School, said that the ECB action made “absolutely no sense”. He said: “There’s no need to do this when a single bank is stressed.”

But investors took the ECB move as a sign that it expects other European banks and funds to announce similarly dire exposures to troubled US mortgages, causing further tightening in the credit markets.

Howard Wheeldon, a senior strategist at BGC Partners, the spread-betting company, said that there was a feeling of “nervous anticipation” among investors as they awaited further announcements. He said: “There’s an underlying belief that the central banks know more than the investors do and that makes people nervous.”

Jimmy Yates, a trader at CMC Markets, the spread-betting company, said: “Uncertainty is the byword at the moment. What we need is a few banks coming out and saying that they’re not affected but no one is. We’re hearing nothing”.

And across the world, other banks followed suit as fear continued to grip global markets. In New York, the US Federal Reserve said that it would pump in a total of $35 billion to help to keep financial markets running.

In a statement, the Fed said that it was “providing liquidity to facilitate the orderly functioning of financial markets” and offered to provide reserves “as necessary”.

Carl Weinberg, at High Frequency Economics, said the credit problems could slow down the wider economy.

“Every time you see a credit crunch and get stock market disorder, you see lower GDP, as borrowing costs rise and spending falls,” he said.

“People’s perception of their own wealth, with a housing slowdown, goes down.”

In Asia, the Bank of Japan and the Reserve Bank of Australia both injected funds, while the Bank of Canada also lent money to quell the panic.

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