The FTSE 100 share index dropped below the key 5000 level on Monday as worries over the US economy hit stocks around the globe.

A sharper than expected increase in American unemployment levels at the end of last week prompted renewed concerns about economic growth and dragged down Asian and European stock markets ahead of Wall Street's opening.

By mid-morning the London stock market had fallen over 130 points, reaching levels not seen since the October 1998 when the Asian economic crisis was hitting investors around the world.

France's CAC 40 index fell to a three-year low of 4290m while in Germany the DAX also fell almost three per cent to 4593, its lowest level for over two and a half years.

In London, however, trading was lighter than usual with just 524.8 million shares changing hands in 34,396 transactions by mid-morning.

The falls come as fears grow that Britain will be hit by the slowdown seen in America and on the Continent. Some analysts expect the US slowdown to hit the profits of British companies while the IMF has also reduced its forecast for UK economic growth.