The FTSE 100 fell over three per cent on Monday – as concerns for banks returned.

The index closed at 3,762.91 – a fall of 135.94 points or 3.49 per cent.

With the Spanish government having to step in and give control of Caja Castilla la Mancha to the Bank of Spain and provide €9 billion of guarantees, financial stocks were again rattled.

Lloyds Banking dropped 14.19 per cent to 65.30p, Barclays was down 13.58 per cent to 150.20 and Royal Bank of Scotland fell 12.41 per cent to 23.30p.

Property giant Liberty International fell 15.18 per cent and insurer Aviva was down 13.71 per cent.

Traders instead turned to more defensive stocks – with pharma giant AstraZeneca up 3.65 per cent and British American Tobacco rising 2.02 per cent.

In New York, the Dow Jones was down by similar amounts to London – dropping 3.68 per cent to 7,489.68 by 11:56 EDT – as General Motors and Chrysler faced further woes.

Tim Hughes, head of sales trading at IG Index, said: “The blame for today’s weakness sits with both the financials and the mining sector. Both Barclays and RBS were off by more than ten per cent today, while some of the big miners suffered almost as badly.

“Over the Atlantic US markets have not helped matters, with the threat of bankruptcy for General Motors and Chrysler once again focusing investors’ minds on just how bad things have got for the economy – and with no immediate signs of it changing anytime soon the outlook remains bleak.”