By Sarah Turner

Lloyds Banking Group on Tuesday became the latest British bank to see its share price plunge, with shares in the lender at one point trading down as much as 48% in London's top share index.

Lloyds Banking Group (LYG) shares were recently down 25.9% at 48 pence. At one point in the session, the shares fell as low as 34 pence, a drop of approximately 48% from Monday's 65 pence closing price.

The British government currently holds 43% of Lloyds Banking Group.

"The market is betting that further banking nationalizations will be necessary," said Manoj Ladwa, senior trader at ETX Capital.

On Monday, Royal Bank of Scotland shares slumped more than 60% after it revealed that it could be on track to post the biggest annual loss in U.K. corporate history and that the U.K. government would take a bigger stake in the lender.

RBS shares recovered slightly on Tuesday, up 2.6%.

"The financial sector is on government life support," noted Richard Batty, investment director for strategy at Standard Life Investments.

Lenders that the government does not hold stakes in were also were declining on Tuesday, with Barclays (BCS) down 15.3% and HSBC Holdings (HBC) down 3.4%.

"The question that investors are grappling with is what's going to happen to the economy given the importance of the financial sector. We see a severe recession," said Batty at Standard Life.

Sterling hit a six-year low against the dollar on Tuesday and was recently down 3.1% at $1.3940.

Overall, the U.K. FTSE 100 index fell 0.5% to 4,089.86. Other European shares also lost ground, as did U.S. stocks.

On Tuesday, Barack Obama takes power as the 44th U.S. president and his inauguration speech is expected to lay out an agenda for change in troubled times.

"We already have details of the $825 billion fiscal stimulus package. On some estimates the package will raise GDP by around 3% to 4% over the next couple of years and save or create around 3.5 million jobs. Success will crucially depend on the bank lending channel," noted economists at UBS.

Mineral extractors up, some retail relief

Still, oil producers advanced in London, with Royal Dutch Shell (RDSA) shares up 1.1%.and BP (BP) shares up 1.9%.

In the retail sector, Burberry Group shares jumped 12.3%.

It said that its revenue in the three months to Dec. 31 rose 30%, boosted by currency moves, which was about 14% above Merrill Lynch expectations.

The firm said that markets were challenging and volatile in the period. It's aiming cut costs further and plans to restructure its Spanish operations and consolidate U.K. manufacturing.

There could be around 250 redundancies in Spain and up to 290 redundancies in the U.K.

Shares of pub operator J.D. Wetherspoon surged 12.7%. Comparable sales in the 12 weeks to Jan. 18 rose 2.6%, an improvement on fiscal first-quarter performance when sales rose 1.5%.

"We feel consumers will become increasingly more price sensitive in 2009 and J.D. Wetherspoon is in an enviable position to take market share," noted analysts at Altium Securities.

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