Leading shares in London closed lower for the fifth consecutive day, with the FTSE 100 closing down 63.9 points, or 1%, at 5831.6.
In a quiet day for company news, the day began with fresh fears about the prospects for British banks.
Bradford & Bingley shares fell by as much as 7% in early trading on speculation that the bank was planning a rights issue to strengthen its balance sheet.
B&B denied the reports and its shares recovered to close down 1.75p, or 1%, at 165.50p.
Other banks were also hit by concerns over the credit crisis, although HBOS bucked the trend, closing up 6p, or 1%, at 513.50p.
The biggest loser in the top share index was British insurer Friends Provident. It fell sharply after rejecting a takeover offer and ultimatum from US buyout group JC Flowers.
It closed down 14.1p, or nearly 11%, at 116.7p.
