Turbulence hit global financial markets on Thursday as fears of further credit market-related writedowns in the financial sector sent equity and corporate bond investors scurrying for the exits.

S&P 500 financial stocks endured their worst one-day selloff in five years as the sector plunged 4.6 per cent and corporate credit spreads were sharply wider. The Federal Reserve, which on Wednesday had hoped its 25 basis-point rate cut would ease financial conditions, injected $41bn in temporary reserves into the banking system – its biggest such move since September 2001. Meanwhile, the Vix index, a measure of equity market volatility known as Wall Street’s “fear gauge”, rose 25 per cent.