THE panic gripping the financial markets showed signs of spreading today as two more banks suffered big drops in their share prices.

Mortgage lenders Alliance & Leicester and Bradford & Bingley followed Northern Rock into share price despair as nervous investors shunned stocks in the sector.

Former building society Alliance & Leicester saw shares plummet by 17 per cent on the FTSE 100 Index while Bradford & Bingley stock dived more than 8 per cent in the FTSE 250.

Investors rushed to sell their holdings amid concerns the lenders would suffer a similar fate to Northern Rock, despite reassurances from bosses over their funding lines.

Stock downgrades from brokers at Citigroup earlier today contributed to the lenders stock market woes.

Comments from former US Federal Reserve chairman Alan Greenspan that the UK housing boom was heading for a painful correction compounded the sector's troubles.

A&L, which has a 4.2 per cent share of the mortgage market, does not forecast profits to be impacted by the global credit squeeze and recently reported a strong set of figures, with half-year profits up 10% to 295 million.

Specialist lender Bradford & Bingley has also given a robust view of its prospects in a bid to fend off comparisons with Northern Rock.

The group today reiterated that its funding was secure, having completed sizeable finance raising deals in May and June.

B&B, which offers buy-to-let mortgages and loans to the self-employed, relies on the credit market for only 25 per cent of its funding, although analysts suggested its exposure to so-called self-certification customers could leave it in hot water if default rates soared.

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