The world's stock markets plummeted yesterday in response to the emergency bailout of US investment bank Bear Stearns.

In New York, the Dow Jones Industrials tumbled in early trading before recovering some ground.

London's FTSE 100 index dropped 3.9 percent, in Paris the Cac 40 slumped 3.5 percent and Frankfurt's Dax fell by 4.1percent.

Meanwhile, The Bank of England yesterday also made an extra £5 billion ($10 billion) available for UK banks to borrow in a bid to ease credit fears. Banks scrambled to get hold the funds and the Bank of England's offer was almost five times over-subscribed.

Investors are worried that the collapse of Bear Stearns, one of Wall Street's biggest names, is a sign that the credit crunch is getting worse and lending might seize up.

Elsewhere, the Dow Jones was down 0.66 percent, or 79.22 points, at 11,871.87 in afternoon trading after tumbling 194 points at the start of trade.