Leading shares suffered their third biggest ever points fall as £36.1bn was wiped off the value of the FTSE 100 Index.

The 3.6% fall - of 206.4 to 5537.5 - was the biggest percentage loss this year and came as a result of two gloomy surveys and a huge bout of profit taking.

Investors sought to lock in profits made last week in the gains which had been branded unrealistic by many in the City.

After yesterday's close - down more than 100 points - the index was further worried by slides in foreign stock markets and fresh research showing manufacturing output falling.

A fall on Wall Street and a wave of profit warnings and redundancy announcements compounded the problems.

A survey by the Chartered Institute of Purchasing Managers showed manufacturing output fell at its fastest rate since the survey began in 1992.

Meanwhile a new poll from the Confederation of British Industry showed recessionary fears spreading and confidence falling in the service sector.

Courtaulds Textiles unveiled a scheme to return its Claremont Garments subsidiary to profitability with 1,220 job cuts and eight factory closures.

The news failed to excite the market, leaving shares unchanged at 157.5p.

The slide was helped by poor news from Kenwood Appliances, down 19.5p at 104p, which warned consumer spending was down in the first half of the year.

Meanwhile Forminster, owners of the Kookai fashion chain, also warned on profits and saw shares slide down 4p to 48.5p.

Carlton Communications slipped 9p to 478p after the media group issued its first end of year results since the launch of ONdigital, its joint venture, into digital TV.

The group announced that the digital launch had knocked £28m off profits.

Granada Group, Carlton's partner in the ONdigital venture dipped 2.5p to 943.5p.

The banking sector continued to take the brunt of the market nerves.

Barclays - still wobbling after the shock departure of its chief executive last week - was down 47p at £13.28.

HSBC, which is soon to impose its name on its subsidiary Midland Bank also slid down 104p to £15.36.

Lloyds TSB - down 51.5p at 791p - and Royal Bank of Scotland down 57p to 856p.

The financial mayhem spread to the insurance sector, which saw CGU down 55p to 906p, Sun Life & Provincial down 33p to 500p and Legal & General down 44.5p to 698p.

The former building societies with their lower exposure to the international market resisted the worst of the early falls but were later drawn into the general market slide.

Halifax dropped 27p to 835p, Alliance and Leicester shed 37p to 871p and Abbey National dropped 64p to £11.61.

Main risers of the day were Telewest up 2p to 133p, EMI up 4.25p to 365.25p, Railtrack up 17p to £16.80 and Marks & Spencer up 3.25p to 415.25p.