STERLING has plunged to its lowest level in 10 months and Scottish stocks fell following the weekend poll, which put the Yes campaign ahead for the first time.

The market jitters, according to Douglas Alexander, the Shadow Foreign Secretary, were proof of the financial problems Scotland would experience if it left the UK, and came as Paul Krugman, a Nobel prize-winning economist, warned Scots to "be very afraid" of independence.

But the Yes camp swiftly hit back with Nicola Sturgeon suggesting fluctuations in the pound could be blamed on the UK Government refusing to have "sensible discussions" about a formal deal to share sterling in the event of a Yes vote.

The Deputy First Minister insisted such fluctuations were not unusual in the midst of political campaigns, adding: "That would suggest the financial markets see Scotland as a strong economy."

The FTSE 100 dropped more than one per cent as investors worried about the impact a Yes vote would have on economic stability and the operations of banks and other companies with bases in Scotland.

Sterling fell by around 1.3 per cent against the US dollar to a 10-month low of 1.61, leaving it around six per cent lower than its peak of 1.72 earlier this summer.Shares in Royal Bank of Scotland and Lloyds Banking Group were down three per cent on the possibility that a Yes vote would force them south of the border.

Edinburgh-based Standard Life saw its shares fall four per cent.

Michael Hewson, an analyst at CMC Markets, said: "For quite some time investors had dismissed the prospect of a Yes vote as an outlier but recent opinion polls have shifted that perception and this has been no better demonstrated than by the plunge in sterling today.

"One thing is certain, if we get this sort of volatility on the prospect of a Yes vote, can you imagine the reaction if we do get a Yes vote? It's not likely to be pretty."

Mr Alexander said the Nationalists were under real pressure to be honest about the consequences of independence. "The reaction of the markets makes clear that they cannot continue with their bluff and bluster; it's too damaging to Scotland's future prospects.

"We need to know what currency we would use in a separate Scotland. We need to know how our pensions and NHS would be paid for. All of these things are at risk and it's just not good enough for Alex Salmond to wish these big issues away," added the Paisley MP.

Mr Krugman argued the risks of Scotland going it alone were huge, particularly if it keeps the pound without a political union with the UK, so-called sterlingisation. He said: "I have a message for the Scots: be afraid, be very afraid. The risks of going it alone are huge."

Mr Krugman pointed out what happened in Europe since 2009 showed sharing a currency without sharing a government was very dangerous. He said: "I find it mind-boggling that Scotland would consider going down this path after all that has happened in the last few years. If Scottish voters really believe that it's safe to become a country without a currency, they have been badly misled."

But a Yes Scotland spokesman pointed out the SNP Government's Fiscal Commission had two Nobel Laureate economists - Joseph Stiglitz and Sir James Mirrlees - who recommended sharing the pound as the best option.

"That also means Scotland being in control of 100 per cent of our revenues rather than the seven per cent under devolution at present, enabling us to build a stronger economy and fairer society," he insisted.