The relief over the US government's $85bn (£47bn) rescue package for insurance giant AIG has proved short lived.
After climbing around 100 points as financials recovered, the FTSE 100 index is now down 32.4 points at 4993.2 as the volatility continues.
Of the AIG rescue, City commentator David Buik of BGC Partners said: "There is no doubt that the Treasury and Fed are running out options and have very little tax-payers money left to play with in the future. Other distressed financial institutions may not be dealt with in such an accommodative manner."
One financial institution in the UK under pressure is HBOS. Initially it climbed around 10%, but now seems in freefall despite yesterday's reassuring noises from both the bank and City watchdog the FSA. They are now down another 34% at 120p.
Bradford & Bingley, downgraded by ratings agency Moody's yesterday, is down 3% at 29p.
But Barclays is up 10.5p to 318.75p as it spelled out more details of its proposed acquisition of Lehman Brothers' assets. It is acquiring trading assets said to be worth £0bn for £0.14bn, including Lehman's North American banking operations.
Insurer Friends Provident has also reversed earlier gains, and is now down 2.7p at 79p.
Miners have made a tentative recovery from their recent weakness, following concerns about falling global demand. Rio Tinto is 152p higher at £40.24, while Kazakhmys is 21p better at 727p.
Publishing group Mecom, hit by a late low-priced trade said to be associated with the unwinding of Lehman Brothers' share positions, has recovered 11p to 21.5p.
But retailer Woolworths is down 3.5% at 5.85p after it announced a record first-half loss and said it had not put its stores business up for sale.
