Bank shares across Europe were hit by a fresh wave of selling on Tuesday, as investor fears about the health of the US financial system intensified.

The FTSE All Share banking index closed at its lowest level since the near-collapse of hedge fund Long-Term Capital Management 10 years ago. The widespread sell-off dragged down equity markets across Europe. The FTSE 100 fell 128.5 points to 5,171.9, its lowest close since October 2005, while the FTSE Eurofirst 300 lost 23.86 points to 1,110.09.