Talk of a profit warning from Merrill Lynch and a rebound in the oil price has put shares under renewed pressure.
It was inevitable that US banks would be under the spotlight after yesterday's comments by Citigroup suggesting further sub-prime write-offs in the second quarter.
Today it was Merrill, with the cost of protecting its debt rising on rumours it would downgrade expectations. Merrill is not due to report numbers for a few weeks, so an interim statement would be a really bad sign.
Even before these rumours, UK financials were already on the way down, with HBOS falling 18p to 278.75p, perilously close to its 275p rights issue price. Yesterday's trading statement has not gone down well with analysts, to say the least.
Meanwhile, a fanfare for the first shorters to disclose their positions under the new FSA rules, which came in partly as a reaction to the plunge in HBOS shares. Investors now have to declare their short interests in companies in the middle of a rights issue.
First on short kid on the block was Elgin Capital, which said it had a short position of 0.89% in engineer Melrose. Then came Arbitrage Asset Management, which is short of 843,747 shares in publisher Johnston Press.
The bulk of these type of statements are likely to come on Monday, since companies have until 3.30pm on the day following dealing to come clean.
As for oil, its $4 rise today followed second thoughts about China's plan to increase petrol costs. Traders said the price rise was unlikely to curtail demand from consumers, as had originally been thought.
So with the bank falls and the inflationary implications of dearer crude, the FTSE 100 is now down 87.1 points at 5621.3, with Wall Street 160 points lower.
