FTSE retreats as credit fears return (FT.com)

The FTSE fell sharply on Wednesday after returning fears about the US subprime crisis caused heavy overnight losses in the US.

Tuesday's 2.5 per cent FTSE rally was wiped out as Wall Street reversed early gains to end the day 1.1 per cent lower.

The latest slump came as American Home Mortgage Investment, the country's 10th largest lender, admitted its lacked cash to fund new loans and said it was considering its options, including the sale of assets.

The FTSE 100 fell 150.6 points, or 2.4 per cent, to 6,231.0 while the mid-cap FTSE 250 slumped 243.4 points, or 2.3 per cent, to 11,094.1.

Asian markets ended sharply lower overnight, while European indices also felt the heat. The FTSE Eurofirst 300 was down 34.34 points, or 2.2 per cent, to 1,515.5.

The FTSE's retreat was broad-based, with only one blue-chip stock, National Grid, up 0.6 per cent to 706½p, in positive territory.

Cadbury Schweppes (NYSE:CSG) was the biggest faller, off 7.4 per cent to 574½p, after the world's biggest confectioner reported lower interim profits.

While volatility on debt and equity markets forced Cadbury to postpone the sale of its US soft drinks unit, the company said a sale remained its preferred option.

HBOS, the UK's biggest mortgage lender, fell 5 per cent to 921½p after it said its share of the home-loan market had slipped to 8 per cent.

Mining companies featured heavily on the list of falling shares as the recovery of the last session was wiped out. BHP Billiton (NYSE:BHP) lost 4.7 per cent to £14.04, Antofagasta fell 4.7 per cent to 694½p and Rio Tinto was 4.4 per cent weaker at £34.45 .

British Airways lost 1.2 per cent to 417.9p after it agreed to pay a fine of £121½m to UK regulators to settle allegations of collusion centred on fuel surcharges.

The airline said news of a further fine, payable to the US Department of Justice, would break later in the session with the total cost in line with existing guidance of up to £350m.