Global stock markets crashed and burned in another day of unrelenting pessimism yesterday, and the UK's benchmark FTSE-100 plummeted below the 4000 mark for the first time in nearly five-and-a-half years, wiping more than £87bn off the value of the blue-chip index.

At one point last night, Wall Street looked as though it might offer a rare glimmer of hope in a day of unruly fluctuations that saw the Dow Jones Industrial Average swing 1000 points. During a wild final hour, the US market leapt violently from almost 400 points down to 300 up - but then, in a final act of torment, it closed down 128 points at 8451.19.

The global meltdown, which reflected fears of a deeper economic downturn and a profound lack of confidence in the ability of governments to do anything to stop it, appeared to add urgency to the financial chaos sweeping the markets.

Last night's fall on the Dow extends a devastating weekly plunge for US stocks, marking their eighth straight day of losses and the market's worst weekly point drop since the index began 112 years ago.

In the UK, the FTSE-100 closed down 8.9%, or 381.7 points, at 3932.1 - its lowest level since May 2003.

Yesterday's bloodbath followed plunges of 8% on Monday, 5% on Tuesday and 1% on Thursday - and means the index has crashed 21%, or 1048.2 points this week alone, wiping £250bn off the market value of the UK's biggest companies.

Meanwhile, sterling stood near five-year lows against the dollar, pressured by an aggressive flight from riskier assets as global stock markets tumbled.

Investors cut exposure to risk and sold bonds for cash on fears of a global financial system meltdown.

The pound yesterday hit a low of $1.6802, but edged up in later trading to $1.6950.

US and European shares appeared to be in free-fall when Wall Street opened a breathtaking 7% lower - below the 8000 level.

European markets fell more than 8% at the opening, but regained a little territory as the day wore on. Ger- many's DAX ended down 342.69 points, or 7%, at 4544.31, while France's CAC-40 shed 266.21 points, or 7.7%, at 3176.49.

Underlining the impact of the crisis, US giant General Electric yesterday reported a 22% drop in third-quarter net income, with the global credit crisis hurting its GE Capital arm.

Frances Hudson, global strategist at Edinburgh-based Standard Life Investments, said: "The market has lost confidence in the power of individual governments to come up with something that might work.

"The evaporating markets are a symptom of many market problems and, as people keep saying, global problems need global solutions.

"But if the credit markets aren't functioning properly, then no solution that doesn't also address that will ever work."

She added: "But there is now also an issue of confidence with the solutions themselves.

"Stock markets are about capitalism and if governments employ the nationalisation - or socialisation - of banks, this is basically saying that capitalism is not working."

World markets appear to be caught in a slow-moving crash, as investors scramble for a way out.

While governments around the world have slashed interest rates and ramped up their lending to unprecedented levels, the banks are still charging each other extremely high borrowing rates - a bad sign for the credit markets that remain close to paralysis and are exacerbating the protracted squeeze.

Investors and banks remained reluctant to lend money to one another for more than one day at a time.

Frozen credit markets and a loss of confidence in the world's financial system have been at the heart of the turmoil.

However, efforts to date by the various governments to help restore confidence in the financial system have failed to open the credit markets. These provide the short-term financing that businesses depend on to fund their daily operations.

The London Interbank Offered Rate, or Libor, for three-month sterling rose from its 6.27125% fixing on Wednesday, minutes before the Bank of England announced the emergency half-point cut in UK base rates to 4.5% as part of a co-ordinated global central bank action at noon, to 6.28% yesterday.

Meanwhile, yesterday's market turbulence in the US and Europe followed Asian carnage earlier in the day.

Shares in Asia plunged as fears continued to spread that a deep global recession was at hand. Japan's Nikkei - reeling from a near-10% plunge on Wednesday - slumped a further 9.6% to close out its worst week in history. The Nikkei has also lost nearly a quarter of its value this week.

In Australia, where the commodity-heavy S&P-ASX200 plummeted a record 8.3%, traders were calling it "Black Friday".

Meanwhile, trading was halted in Austria, Thailand and Indonesia because of steep declines after the opening bell. The Moscow stock exchange did not open at all, as the Duma, or lower house of the Russian parliament, approved a financial sector bail-out package worth more than $80bn.

Nonetheless, in spite of the lingering scepticism, traders will be closely watching the G7 finance ministers meeting this weekend, and hoping the officials will consider guaranteeing lending between banks - which could potentially lower the painfully high interbank lending rates.

The finance ministers are expected to discuss several new measures, including the injection of government money into banks in return for ownership stakes.

President George W Bush is scheduled to meet finance ministers from the UK, Italy, Germany, France, Canada and Japan today.