Leading UK shares have had another bad day, with oil companies and banks dragging the FTSE 100 index down by more than 2%.

Shell reported a substantial rise in quarterly profit but investors took a dim view of its future prospects, calculating that energy firms would be some of those worst affected by economic uncertainty thrown up by possible war on Iraq.

There are fears the economy is not as well as we thought Simon Buckingham, Gerrard stockbrokers

Shell's shares fell 5% while rival BP dropped 4%.

Royal Bank of Scotland lost 4.5% and Barclays 3.5% after analysts at Merrill Lynch cut their profit estimates for the two institutions.

Panic?

A surprise decision by the Bank of England to trim interest rates by a quarter of one percentage point to 3.75% failed to buoy investor confidence, dealers said.

The Bank said the cut was intended as a means of controlling inflation. Some dealers viewed the decision as a sign a panic.

"The market has not reacted very well to the Bank of England rate cut," said Simon Buckingham, head of UK dealing at stockbroker Gerrard.

"There are fears the economy is not as well as we thought."

Investors were also disheartened by US data showing the biggest decline in productivity there since the first quarter of 2001.

In early afternoon trade in New York, the key Dow Jones index was down about 0.5%.