By lunchtime, Britain's FTSE 100 was down 1% or 62 points to 5756.2 as shares in the banking sector slid on continued credit crunch worries.
There was a slight rebound this morning after yesterday's losses, but these gains were short-lived as a slump in financial stocks wiped 18 points off the index.
Fears over possible trading losses and banks' ability to lend to hedge funds if tighter lending conditions remain continues to linger of the market feeding volatility.
HBOS lost 3.14%, Alliance & Leicester dropped 2.3% while HSBC fell 3% after being supported yesterday by firm results.
After a strong start, the mining sector saw mixed results with Rio Tinto losing about 1% despite comments from the chief executive saying that strong demand from China would help offset any slowdown coming from the US economy.
Motor insurer, Admiral also suffered a tough morning, with shares tumbling by 10.6% after it warned of a tough trading year ahead despite a stronger-than-expected jump in 2007 profits.
Investors are waiting the open of US markets and expecting the Dow Jones Industrial Average to start lower as caution remains over the outlook for the troubled US economy.
