The London stock market suffered its third largest fall ever today in what analysts dubbed the great crash of 2008, as a wave of panic selling swept the globe.

The FTSE 100, which plunged by more than 10% in early trading, closed 8.85% lower at 3932.1 – a 381.7 point fall, wiping about 89.5bn off the value of Britain’s biggest companies.

This is the worst daily fall since the crash of 1987, beating Monday’s 7.85% decline .

Shares in Wall Street also fell today, with the Dow down 128 points, 1.49%, at the close and most other world stock markets were gripped by fears of recession.

Dealers in the City dumped shares when trading began this morning, cutting the value of the FTSE 100 by more than 100bn at one stage.

David Evans, analyst at BetOnMarkets.com, said the turmoil went well beyond a mere bear market.

We are now witnessing the great crash of 2008, Evans said. Certainly, there have been bigger one-day falls in percentage terms, but the scale and unyielding nature of the sell-off of is unique.

Wall Street experienced wild fluctuations today, after the Dow hit a five-year low yesterday .

The Dow Jones industrial average initially nosedived by almost 700 points when it opened this afternoon, and after swiftly rebounding it fell again after President Bush spoke about the crisis. It closed down 1.49%, or 128 points, at 8451.19.

The pressure is piling on world leaders as they meet in Washington for the G7 summit to consider joint action to contain the financial turmoil.

The CBI warned that any signs of disarray at the G7 meeting could have a devastating effect on the markets.

Never has a meeting of the G7 been so important to the financial markets, said the CBI’s deputy director-general, John Cridland. This meeting has the power to galvanise sentiment and aid the confidence-building process internationally.

Banks and miners led the fallers in London as the pound hit a five-year low against the dollar. Thomson Reuters was the only company not to drop in value today, closing 1p up.

David Buik, veteran City commentator at BGC Partners, said that the trading had been a bloodbath.

Just pure blind panic! Valuations go out the window, sentiment rules OK, Buik said.

Yesterday, in a further sign that the wider economy was being pulled into the crisis, shares in General Motors and Ford plunged on Wall Street over fears that the troubled automotive industry may not survive the downturn.

The stockmarket turmoil shows confidence has not been restored despite America’s $700bn (380bn) bail-out, Britain’s 500bn banking rescue plan and the coordinated interest rate cuts by the world’s central banks.

The latest Libor figures, released before noon, showed that banks were still very reluctant to lend to each other.

It’s clearly a crash

Investment guru Jim Rogers today criticised the political response to the crisis, warning that attempts to rescue incompetent banks would simply drive up debt and inflation.

Markets are collapsing because they have no confidence in the various government plans, said Rogers, who said the markets were very clearly experiencing a crash.

Martin Slaney, the head of derivatives at financial spread betting company GFT, said markets were suffering vicious sell-offs.

What we are witnessing is mass selling on a global scale due to a combination of sheer panic and fear, combined with complete uncertainty over the future of the world’s major economies, Slaney said. Investors are effectively pricing in the possibility of a global depression.

Japan’s Nikkei index has now fallen by more than 24% in the past week. It closed down 9.6% earlier today, its biggest one-day fall since 1987, at 8,276, while Hong Kong’s Hang Seng index was nearly 8% lower at 14,672.

The price of a barrel of oil also tumbled overnight. with traders anticipating lower demand as several economies lurch towards recession.

US light crude for November delivery dropped $4.19 a barrel to $82.40, taking its losses over the past two weeks to 23% — the biggest two-week sell-off since prices fell at the start of the 2003 war in Iraq.

London Brent crude slid $3.58 to $79.08 a barrel, falling below $80 for the first time in a year.

Gold prices jumped to the highest in two months as investors scrambled for safety. Spot gold rose for the fifth day in a row and hit $925.05, the highest since July 31.

Investors only concentrate on gold. Stock prices and other commodities are not so good, said Yukuji Sonoda, a precious metals analyst at Daiichi Commodities in Tokyo.