Fund managers and analysts fear that the financials sector is set for further volatility and could face more banking failures and writedowns in the wake of Lehman Brothers' bankruptcy and the acquisition of US investment bank Merrill Lynch early this morning.

Philip Gibbs, London-based manager of Jupiter Asset Management's £734m (€926m) global financials portfolio, said: "While the Fed has acted to make it easier for financial institutions to access liquidity and ten global banks have created a $70bn (€50bn) liquidity pool to support other vulnerable institutions, the risk of further writedowns and failures in the banking system is high. I remain extremely cautious on the outlook and this is reflected in my portfolio."