The housing slump and rate rises have been big problems for lenders

Firms have seen the credit squeeze - prompted by woes in the US sub-prime mortgage market - hit their ability to refinance debt.

Australian lender RAMS closed down 37%, while US firm Countrywide has dropped 16%, warning it may face bankruptcy.

Northern Rock was among the UK losers, falling 3.6% by afternoon trade.

Emergency credit move

Countrywide gave a fresh warning of the state of its situation on Thursday, saying it was drawing down an entire $11.5bn (�5.8bn) credit facility to help bolster its liquidity.

It is like a shipwreck at sea and we have got to wait and see how many bodies wash up on the shore James Holt Analyst, Zurich Investment Q&A: World stock market falls What's causing credit crunch?

The announcement came a day after brokerage Merrill Lynch advised its clients to sell shares in Countrywide.

Countrywide said on Monday that foreclosures and mortgage delinquencies had risen in July to their highest levels since early 2002.

Banks and investment funds have also been hit, as investors watch and wait to see who will be next to reveal their exposure to the US sub-prime or high-risk home loan sector.

"Given how tense the market is, anyone even remotely suffering from problems relating to credit or widening spreads is getting absolutely hammered in the market place," said Zurich Financial Services fund manager James Holt.

"It is like a shipwreck at sea and we have got to wait and see how many bodies wash up on the shore."

'Volatility to continue'

The US sub-prime mortgage sector 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.

Because the lenders have often sold on the debt, this has led to extensive financial difficulties for a number of investment funds with heavy exposure to the sector - prompting fears of a wider financial crisis.

Analysts say that the biggest worries for investors is not knowing the eventual scale of the problem.

"Market volatility is going to continue until the extent of the problem is properly known," said Richard Hunter, equities analyst at Hargreaves Lansdown.

"It may take a few weeks for positions to unwind and for banks to hold their hands up and reveal how much they are exposed to."