British shares ended the session mired in the red yesterday, led by a sharp fall in bank stocks after fresh concern about the future of the two largest US home finance groups rattled investors.

British shares ended the session mired in the red yesterday, led by a sharp fall in bank stocks after fresh concern about the future of the two largest US home finance groups rattled investors.

The FTSE-100 index of blue-chip stocks closed down 129.79 points at 5320.40.

A Barron's newspaper report that suggested the US government may have no choice but to effectively nationalise mortgage finance groups Freddie Mac and Fannie Mae reignited concern in the investment community that the mortgage crisis was far from over.

This, along with a stark warning from the former chief economist of the International Monetary Fund that the worst of the global financial crisis is yet to come tilted bank shares in the UK and mainland Europe into the red.

HBOS lost more than 7%. Barclays slipped by 5.4%, Royal Bank of Scotland fell by 6% and Lloyds TSB eased 5.8%.

Insurers did not escape the bloodbath, with Legal & General falling nearly 7%.

Among the consumer sector stocks, Wolseley dived nearly 9% - making it the top flight's biggest casualty. Defensive stocks fared better, with Scottish & Southern Energy rising 1%.

Commenting on the market's steep slide, Jimmy Yates, a dealer at CMC Markets, said: "The FTSE is sitting on a triple-digit loss ... with credit crunch issues continuing to linger and as a result, the banking sector has taken the brunt of (the) downside ... although there has been little cheer to be found elsewhere either.

"On the domestic calendar, economic and corporate data has been rather limited but a new all-time low for US housing starts has added to the gloom on Wall Street, where Freddie Mac and Fannie Mae are both continuing their slide amid concern as to how the Federal Reserve will ultimately direct them in the near term."