The UK's stock market has fallen to its lowest level since December 1996, wiping about �55bn off the value of leading UK shares.

The benchmark FTSE 100 index closed below the symbolic 4,000 level at 3998.8 on Monday, down 225.3 points or about 5.4%. The FTSE had fallen as low as 3,974.6 earlier in the day.

UK shares tumbled after renewed worries over possible earnings manipulation by listed firms and a fall in the dollar triggered a slump on Wall Street.

The Dow Jones index was down more than 400 points at 8,245.01 to levels last seen in the aftermath of 11 September last year.

By the end of the day, the index had clawed its way back to close less than 50 points below yesterday's finish.

NatWest Stockbrokers' Scott Penrose described it as "a case of the US market sneezing and the London market catching a cold" in an interview with BBC World Business Report.

"Confidence is shot. People are losing the plot. People are selling stock to buy gilts (UK government bonds). It's panic and they want to get their money out," said one trader in London.

The London market's latest slide - which happened to coincide with Chancellor Gordon Brown's announcement of plans to boost public spending - left the FTSE index down 23% since the start of the year.

Accounting worries

Investors' faith in the accuracy of corporate financial statements has been severely shaken in the wake of financial scandals at Enron and Worldcom in the US.

A fall in the dollar to parity with the euro exacerbated traders' concerns over corporate profitability on Monday.

In London, major hits were taken by the banking sector, where some leading groups saw their shares fall about 7%.

The energy giant Shell slid about 8% due to accounting concerns, pulling its rival BP lower.

Telecoms and pharmaceuticals also fell steeply, piling further pressure on the FTSE index down.

Europe suffers

"For lack of a better description, you have as much fully-fledged panic as you are going to get," said US Bancorp Piper Jaffray director of institutional trading, Tony Cecin.

Sharp falls in share prices were also seen on Europe's bourses.

"The main problem is that most of our investors are not willing to invest in stocks and are very confused by the problems with accountancy scandals," said Merck Finck Bank dealer Juergen Gries in Munich.

Germany's Dax index also fell below the psychologically important 4,000 level, trading down 188.11 points at 3,942.69 at about 1620.GMT.

The Cac 40 index of leading French shares closed down 5.4% at 3,323.74 points, its lowest close since October 1998.