Scottish & Southern Energy was up 1 per cent on heavy volume at £14.14 on rumours of a bid from Sweden's power giant Vattenfall.

The rumoured price was £16.50. Vattenfall recently pulled out of a plan to jointly bid for British Energy alongside German group RWE. SSE is the only big six UK utility not looking at expanding into nuclear power in a deal with British Energy.

The FTSE 100 opened at 5254, below last Friday's closing price of 5,262 and back at levels not seen since October 2005 as bank stocks were hit by cynicism over the Fed's bail out plan for Fannie Mae and Freddie Mac. UK inflation figures showing a record high also weighed on sentiment.

Royal Bank of Scotland lost 5 per cent to 171.4p.

Midcap mortgage banks were also under the cosh, Alliance & Leicester fell back 6 per cent to 315.5p, to just below the 317p bid price from Santander including the 18p dividend,

Carphone Warehouse fell 4.4 per cent to 189.9p after BT unveiled plans to spend £1.5 billion rolling out fibre to the home to allow stronger broadband connections. BT lost 4 per cent to 193.9 since it is having to stop its share buyback to finance the move, seen as a way of defending itself against Virgin Media and mobile broadband.

The insurance sector was under pressure after Morgan Stanley cut price targets across the board ahead of interim results.

Friends Provident lost 3.6 per cent to 80.7p, also afflicted by diminishing chances of selling its F&C Asset Management arm and having pulled the sale of its Pantheon business.

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