NEARLY £56bn was wiped from the value of London's leading companies yesterday as fears over a credit crunch in global markets intensified.

The FTSE 100 Index lost 3.7 per cent - its biggest fall since March 2003 - adding to the heavy falls for the benchmark index seen on Thursday.

Experts warned that turmoil in global stock markets could have implications for UK consumers as lenders become more cautious.

Prime Minister Gordon Brown sought to calm the market, saying: "I think the important message to be sent is we have done everything in our power to maintain the stability of the British economy."

Uncertainty in global stock markets has been driven by fears over banks' exposure to losses in the collapsing US sub-prime mortgage market (high-risk mortgages lent to people with poor credit histories and those on low incomes).

These concerns have spread to the wider credit markets as banks take a more cautious approach to risk amid rising interest rates.

Less than a month ago, the Footsie was trading at seven-year highs above the 6,700 barrier, but yesterday's losses saw it retreat well below the level at which it opened the year, closing at 6038.3.

Since Thursday, the US Federal Reserve, the European Central Bank and national banks in Japan, Canada, Australia and Hong Kong have intervened with emergency funding to prop up credit markets for the first time since the 9/11 terrorist attacks in 2001.

Howard Archer, chief UK economist at Global Insight, said: "A credit crunch makes it harder and more expensive for businesses and consumers to get loans and cash.

"There is a danger that financial market turmoil and tighter credit will hurt the mortgage and housing markets in the UK and Eurozone. This increases the risk that the UK housing market could see a sharp slowdown."

After overnight falls in Asian markets, the hardest hit stocks in London were in the financial sector, with banks and investment firms suffering heavy losses as fears over their exposure to US sub-prime mortgages again rocked markets.

Barclays fell more than six per cent, Royal Bank of Scotland nearly four per cent and mortgage lender Northern Rock more than nine per cent.

Tim Scholefield, head of equity at Baring Asset Management, said: "Investors will remain cautious until the fuller picture of financial impact of the deterioration in the US mortgage market becomes clear over the next few weeks."

HSBC was the first bank to flag up problems in the US sub-prime mortgage market after announcing larger than expected loss provisions in February.

But other experts said that an irrational market was over-reacting to the current fears.