London's FTSE 100 fell below the 6,000 level on Thursday as uncertainty over the impact of losses in the US sub-prime lending market persisted.

The index of leading UK shares lost 2.2% to 5978.2 points in early trading on the back of heavy falls in Asia and further declines on Wall Street.

Concern about the state of world credit markets saw the US Dow Jones index close below 13,000 on Wednesday.

Japan's Nikkei index lost 2%, with shares down 3.7% in Hong Kong.

France's Cac-40 index was 2.2% lower while Germany's Dax-30 opened down 1.7%

The FTSE has not fallen below 6,000 during a trading session since March this year. It last closed below 6,000 in October 2006.

In the US, the Dow ended 1.3% lower at 12,861.5 points, the first time it has closed below 13,000 since 24 April.

Unknown scale

The recent financial market volatility has been triggered by the US sub-prime mortgage sector, which offers higher-risk loans to people with a poor credit history.

As US interest rates have risen and the housing bubble has burst, a growing number of sub-prime borrowers have defaulted on their loans.

This has led to extensive financial difficulties for a number of investment funds with heavy exposure to the sector - and triggered fears of a wider financial crisis.

While some estimates say $300bn in loans could be at risk, one of the biggest worries for investors is not knowing the eventual scale of the problem.

Central banks have been trying to restore confidence and avoid a credit squeeze, with the Bank of Japan announcing on Thursday that it would inject a further 400bn yen ($3.4bn) into its banking system.

However, such moves, along with comments by US Treasury Secretary Henry Paulson that the economy was strong enough to withstand the turmoil, have done little to appease investors.

In Japan, the Nikkei index closed down 2% at 16,148.49 and elsewhere in Asia, Singapore lost almost 3.7% and Australia's benchmark S&P/ASX 200 lost 1.7% - having at one point suffered its biggest one-day percentage drop in more than seven years.

And when markets opened in Mumbai, India's Sensex index lost 4.34% of its value within minutes.

Credit problems

Australian home loan firm RAMS saw its shares sink 36% after it said it had failed to refinance 6.17bn Australian dollars ($5bn; £2.5bn) in debt after the credit crunch spurred by the crisis in the US housing market.

The problems also came to the fore when Merrill Lynch told its clients to sell any shares they own in the country's largest mortgage lender, Countrywide Financial.

It warned that Countrywide could face bankruptcy if the availability of credit in the market got any worse - and there were market rumours that the lender had failed to raise some money it needed.

"The problems in the sub-prime mortgage market will linger on for a while," said Bart Ingels, an analyst at Fortis Bank, in Brussels.

"Some days it was a little bit better but then negative news came to the fore, and it will go on like that for a while."

Worries about a slowdown in US consumption were not helped by results from the department store Macy's, which blamed the "difficult" climate for a 77% fall in its quarterly profits.

The US Federal Reserve made another $7bn (£3.5bn) of reserves available to the banking system on Wednesday. The Fed has injected $71bn into the system since 9 August.

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European banks reveal crisis damage
European investment banks on Monday were forced to reveal the heavy damage inflicted on their profitability by the recent turmoil in financial markets.

Credit Suisse (NYSE:CSR) followed UBS (NYSE:UBS) with a profit warning but the announcements prompted a sector share price rally on investor hopes that the disappointing trading statements could signal the worst might be over for the banks by quantifying the extent of fallout from the turmoil.

UBS confirmed it would make sweeping management changes after revealing it would post pre-tax losses of between SFr600m and SFr800m ($515m-$685m) in the third quarter - its first quarterly loss in nine years.

The losses, driven by writedowns on holdings of US subprime residential mortgage-backed securities, will lead to 1,500 job cuts. These are expected to be concentrated on fixed income units in London and New York. Huw Jenkins, who ran the investment banking business at UBS, is leaving the bank as part of a shake-up that also triggered the retirement of Clive Standish, chief financial officer.

CS said third-quarter net profits were likely to be SFr1.3bn, plus or minus 20 per cent, against expectations of about SFr1.6bn. The bank reported a net profit of SFr1.47bn on a comparable basis in the same period last year.

"Credit Suisse's announcement is in effect a profit warning for the third quarter," said Jeremy Sigee, an analyst at Citigroup Global Markets.

Huw van Steenis, an analyst at Morgan Stanley, said hedge funds were covering short positions and long-only investors were increasing their exposure to financials now banks were visibly "cauterising their wounds".

It was unclear on Monday whether Deutsche Bank (NYSEB) would also renew guidance.

Shares in UBS rose 3 per cent to SFr64.50. Credit Suisse closed up 1.8 per cent at SFr78.70.