MILLIONS of pensioners, homeowners and small investors were holding their breath last night in the face of a £36.6bn stock market meltdown.

Despite staging a late rally yesterday, analysts warned of further bad news to come as fears of a world recession continue to drive share prices down. At one point share prices slid to their lowest since October, 1998.

Experts warned that the impact would be felt far beyond investors and stock market speculators but urged people not to panic.

If the fall continues, tens of thousands of homeowners may be faced with paying thousands more into their endowment policies. Unlike capital mortgages, endowment mortgage holders do not repay the loan itself with monthly payments.

Instead, borrowers pay into an investment fund which, in theory, will mature to pay off their loan.

Concern is mounting that endowment funds are not growing fast enough and thousands of homeowners will be left without enough cash to pay for their homes.

Many homeowners have already been forced to plough extra money into their endowment funds.

Workers paying into pension funds are also facing an uncertain time. About 12 million people have pensions that are linked to the stock market.

Small investors paying into Personal Equity Plans and Individual Savings Accounts will also feel the cost of crumbling share prices.

Yesterday's fall means the FTSE 100 - the list of top 100 companies and a crucial barometer to the state of the economy - has fallen by 23 per cent in the past year.

Last night, experts warned small shareholders to beware. Tom Hougaard, a trader at City bookies Financial Spreads, said: "There may now be a bounce, but the market is really treacherous at the moment and I would advise members of the public to stay well clear."

Jeremy Batstone, head of research at NatWest Stockbrokers, said that any hopes that the late rally could signal a surge in share prices were way off the mark.

"Investors may think we are back on track but my feeling is that until we see a broad-based economic recovery and improvement in corporate earnings, the stock market cannot make any progress."

Chris Sanders, an independent financial advisor at BiB in Darlington, urged people with savings and pensions linked to shares not to panic.

Those hit hardest by the recent falls were people with pensions or endowment policies which were about to mature.

"The market may fall still further, and there is no saying when or where it will bottom out," said Mr Sanders.

"What has to be remembered is that the market always bounces back - there is just no guarantee of when that will happen.

"The classic investors' mistake is selling as soon as the market goes down. They should stick with it and wait for steady growth to return."

However, some analysts predict that the FTSE 100 is likely to fall below 4,800 and could go as low as 4,600 before it starts to climb up again.

The fall is being caused by fears over the health of the global economy.

Mr Sanders added: "The British economy is in relatively good shape, despite recent job losses, but it's what happens in the global economy, particularly the US, that counts most."