US shares plunged to levels not seen since 1997 yesterday as investors took flight after a series of grim economic figures fuelled fears of a deep, prolonged American recession.

The broader-based S&P 500, which has halved in a year, fell 6.7 per cent at 752.44, its lowest close since April 1997. The Dow Jones industrial average plummeted 5.6 per cent, or 444.99 points, to end a brutal trading session at a five and a half-year low of 7,552.29.

Earlier in London the FTSE 100 index fell to its lowest level for more than five and a half years at one point. The FTSE closed down 130.69 points at 3,874.99, its lowest close since the depths of the financial crisis in mid-October.That means that the index of Britain’s leading companies has fallen 8.5 per cent so far this week, wiping £84 billion from share values.

Wall Street was reacting to the rapidly changing news of a possible rescue for the US car industry — falling to new lows when the deal ran into trouble. Democrats have delayed any decision until December.

Citigroup, the banking giant, was one of the biggest fallers, crashing by 26 per cent despite news that Prince Alwaleed bin Talal, the billionaire Saudi, plans to raise his stake to 5 per cent. JPMorgan fell almost 18 per cent and is expected to announce 3,000 job cuts in its investment banking division today.

Investors’ fears were confirmed by news that new jobless claims rose by 542,000 last week in the US — the highest weekly increase in 16 years and worse than market fears — and by concerns that America’s Big Three carmakers, Ford, General Motors and Chrysler, will be refused a bailout by the US Government. That led to worries about demand for metals that sent shares in mining companies, heavily represented in the FTSE 100, down sharply.

Global recession fears also hit the commodity markets, where the price of crude oil dropped below $50 per barrel, hitting its lowest point for more than three and a half years.

The mood was darkened by news of more job cuts in Europe, including 2,700 at Peugeot, the French carmaker, 2,000 at Rolls-Royce, the jet engine maker, and 1,400 at AstraZeneca, the Anglo-Swedish drugs maker. The German Dax index and the French CAC-40 index fell by 2.8 per cent and 3.2 per centrespectively.

In Britain, sentiment was hit by some unexpectedly bad data on public finances, which ran into the red for the first October in 14 years.

Shares in life insurers were also battered, after falls in shares of US life companies, which have been hit by redemptions among retail investors. Aviva, Britain’s No 1 insurer, fell by almost 17 per cent, Prudential, the No 2, dropped by 16 per cent and Legal & General by 13 per cent.

The meltdown sparked turmoil in other markets as investors sought safe havens. Yields on two-year and five-year US Treasury notes fell to a record low, as did the long-bond yield, while yields on ten-year notes dropped to their lowest levels for five years.

On currency markets, the Swiss franc plunged to its lowest level against the US dollar since August last year.

The latest declines came after heavy overnight losses across Asia, where Japan’s Nikkei 225 slid by almost 7 per cent, which then spilt over into Europe.

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