Shares in London and the rest of Europe crashed this morning in what dealers were calling another meltdown Monday.

The FTSE 100 plunged 5% in the opening minutes of trading, plummeting 245 points to 4735. There were equally sharp falls in other European markets and in Asia overnight as Europe's banking sector was rocked over the weekend by a series of crisis talks and amid fears over the stability of the Icelandic economy.

Billions of pounds were wiped off the value of Britain's banks. HBOS fell 16%, or 32p, to 169p and Royal Bank of Scotland shed 24p to 162p, a 12% fall.

Wall Street is also expected to share the gloom. The Dow Jones industrial average is tipped to fall by more than 200 points when trading starts - following the passing of the $700bn (£390bn) bail-out plan on Friday evening - as the financial crisis threatens to enter a new and damaging phase.

The German government astonished its fellow European nations – and angered the UK Treasury – last night by unexpectedly announcing that it will guarantee all retail savings deposits. The move is an attempt to prevent an exodus of savers, but it also undermined efforts to develop a single Europe-wide approach to the crisis.

The European leaders agreed a £12bn rescue package for small businesses at their weekend meeting. But Germany's unilateral approach has disappointed the City.

"It's every man for himself in a united Europe - not," commented Manus Cranny of MF Global Spreads, who forecast a "very difficult" day's trading.

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