LONDON (AFP) - The leading share index fell sharply into the red on Friday after the proposed $700 billion bailout of the US financial sector hit an impasse amid political wrangling in Washington.

The FTSE 100 index shed 2.09 percent percent to close at 5,088.47 points as financial stocks bore the brunt of the losses.

US President George W. Bush tried to reassure the global financial markets as deadlock on the vast bailout plan slammed stocks and international bank lending.

"We've got a big problem...we need a rescue plan," Bush said minutes after Wall Street shares dropped in line with a global trend and central banks again injected tens of billions of dollars to avert seizure on interbank lending markets.

Banking shares took a hit after it emerged that Washington Mutual -- the second-biggest US savings and loan institution -- was being rescued in a $1.9-billion takeover by JPMorgan Chase.

Old Mutual was the biggest faller as the insurer shed 8.50 pence -- or 9.68 percent -- to close at 79.3.

Lloyds TSB was another heavy casualty as the high-street bank saw its share price slide by 22.25 pence -- to close at 8.14 percent -- to close at 251.

Among the gainers, International Power topped the FTSE 100 leaderboard as it added 12.50 pence -- or 3.58 percent -- to close at 362.

Sainsburys was also in demand as the UK's third-biggest grocery group saw its shares rise by 11.50 pence -- or 3.27 percent -- to close at 363.25.

Vodafone remained the most-traded issue as investors exchanged 155 million shares in the world's largest telecommunications group.

The heavy losses suffered by the financial sector led traders to shift 123 million shares in Royal Bank of Scotland, which ended the session down 0.95 percent at 208.

The uncertainty of the bailout plan helped the pound claw its way up against the dollar, and by 13.21pm it had risen 0.3 percent to $1.8440.

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