Continuing woes in the banking and retail sectors heaped further misery on already depressed markets yesterday.
The FTSE 100 Index dropped three per cent after Citigroup revealed further massive losses on high-risk mortgage investments.
A £9.2 billion write-down on sub-prime mortgages by the world's biggest bank sent a shudder through the index, which eventually closed 190.1 points lower at 6025.6.
The fall wiped £45 billion off the value of blue-chip shares, leaving the Footsie floundering at its lowest close since the start of the credit crunch last August.
As well as contending with Citigroup's £5 billion fourth-quarter losses, investors were worried by weaker-than-expected retail sales figures in the US.
In London, the Citigroup news put major banks on the back foot, with HSBC shares down more than four per cent, while Barclays fell 16p to 464.5p.
Royal Bank of Scotland slipped 24.5p and Lloyds TSB was 19p down at 406p.
The banking problems helped to deflect attention away from mounting concerns in the supermarket sector, where grocery rivals Tesco and Sainsbury's experienced contrasting fortunes.
Tesco, the UK's biggest supermarket, saw shares fall more than three per cent after revealing that the growth in like-for-like sales excluding petrol during the six weeks to January 5 was 3.1 per cent - well below the four per cent widely fore-cast by retail analysts.
The grocer put a brave face on the performance, claiming that the trading results were "strong" but the key trading measure, which strips out the impact of changes in store space, was also lower than the 4.1 per cent growth for the retailer's last quarter, which covers the three months to November.
Tesco's finance director Andrew Higginson said: "In terms of the UK I think it's a strong performance."
But his comments failed to reassure analysts who maintained that the company - which has nearly a third of the UK's £32 billion grocery market - was disappointing.
Broker Citigroup said that a slowdown in a company the size of Tesco would perturb the market.
It has forecast annual pre-tax profits for the year to February 28 of £2.7 billion, up 12 per cent from the £2.4 billion last year.
Tesco's Christmas sales growth was lower than the 3.7 per cent reported by rival Sainsbury's last week.
The poor update from Tesco ensured that Sainsbury was one of the few companies to benefit from yesterday's trading. The supermarket climbed to the top of the Footsie risers' board as it also benefited from a broker upgrade. Shares ended 634p higher at 386p.
Meanwhile, Merrill Lynch's scramble to raise capital - spurred by huge mort-gage losses - continued with a £3 billion offering of preferred shares to a group that includes US, Asian and Kuwaiti investors.
Over the past month, the world's largest brokerage has announced plans to raise £6.5 billion from outside investors.
Merrill is anxious to raise capital after taking a £4.3 billion write-down in the third quarter, and is expected to take an even bigger hit tomorrow when it reports year-end results.
Merrill's gross exposure to sub-prime and collateralised debt obligations is about £14 billion.