UPDATE: FTSE dips below 5,000

The FTSE 100 dipped below the 5,000 mark this morning after a short-lived rally at the start of trading.

The FTSE 100, which usually tracks the Dow in early trading, fell 0.75% to 5,034 shortly after the bell, then gained 0.63% to climb back above the 5,100 mark. It then slipped back below the 5,000 mark, falling 1.41% to 4,997.

European markets were also climbing this morning, with the French Cac up 1.04% to 3,157 and the German Dax up 0.55% to 5,955. However, both were down more than 0.5% as the investors worried about how Europe and the US will work their way out of a high debt burden if the global economy slows.

On Monday, London's leading index closed 3.4%, or 178 points, lower at 5,068. It was the first time in the FTSE 100's 27-year history that it had fallen by more than 100 points for four sessions in a row.

Meanwhile Asian markets suffered huge losses in trading today after an overnight sell-off in the US saw the Dow Jones shed more than 630 points.

Japan's Nikkei 225 index recovered in late trading on Tuesday to close 1.7% lower, having earlier fallen almost 3% to below 9,000 for the first time since the nation was hit by a deadly earthquake and tsunami in March.

Elsewhere South Korea's Kospi lost 3.6% - having earlier declined more than 5% - and Hong Kong's Hang Seng dropped 6% on fears the US is heading for a recession before also paring losses.

China's monthly inflation figures did little to quell investors' fears, with consumer prices up from 6.4% to 6.5% in July, suggesting government measures to dampen growth have failed.

Overnight in New York, the Dow Jones shed 635 points, or 5.55%, to 10,809, its biggest one-day decline since October 2008 and the sixth largest on record.

It came despite attempts by President Barack Obama to calm investors' fears following the unprecedented move by ratings agency Standard & Poor's (S&P) to downgrade the nation's debt from AAA.

The Federal Reserve is set to meet today to discuss the crisis with speculation growing that chairman Ben Bernanke may do more to help restore confidence, with Harvard University economist Kenneth Rogoff predicting the central bank will embark on a third round of asset purchases.

Concerns about a slowdown have also taken their toll on commodities prices.

On Monday, the Reuters-Jefferies CRB index, a basket of commodities, fell 2.8% to 317 points, its lowest level since December, dragged down by a sharp drop in oil and copper prices.