WALL Street had one of the most nail-biting days in its history yesterday as American stock markets gyrated wildly, renewing fears that the internet bubble had burst. Panic selling of high-tech shares brought frantic scenes on New York's stock exchange.

 Nasdaq, the exchange which bills itself as "the stock market for the next 100 years" dropped a record 574 points at one stage, breaking Monday's previous record of 349 points. It is home to names such as Microsoft, Cisco Systems and Dell Computer, as well as "new economy" companies including Yahoo! and Amazon.com.

 However, the market recovered towards the close as bullish investors saw the fall as a buying opportunity. Others switched their holdings into safe investments such as utilities and insurance companies. The Dow Jones industrial average lurched uncontrollably, falling by 503 points at one stage as financial giants heavily exposed to the stock market's fortunes, such as American Express and J P Morgan, joined technology victims such as Intel, IBM and Hewlett-Packard in the bloodbath.

 Microsoft, whose value dropped by £51 billion or 15 per cent on Monday as traders anticipated a ruling by an American judge that it had used "predatory" tactics, lost another six per cent of its worth. The software giant started the week as the world's largest company. It is now in third place after Cisco Systems and General Electric.

 Tony Dwyer, of the securities firm Kirlin Holdings, said: "This is classic panic selling. This has nothing to do with Microsoft. This has to do with a Nasdaq market that investor euphoria sent to unsustainable levels." Larry Wachtel, of Prudential Securities, said: "This is the culmination of an excess. And so the crisis begins. And when the crisis begins anything can happen."

 New economy firms in London also suffered badly, threatening their brief sojourn as blue chip companies. A group of 10 which replaced nine old economy firms in the FTSE index of 100 leading shares last month have lost an average of more than 37 per cent of their value, compared with a rise of around 17 per cent for the ousted companies.

 Lastminute.com, whose stock market listing last month was seen by many as the top of the market, lost 27.5p to 195p and is now nearly 50 per cent below its offer price of 380p. The FTSE 100 ended the day down 35.1 points at 6,427, 500 points off its all-time high of 6,930 on Dec 30 last year.

 London dealers were bracing themselves for another difficult day today. The City will be especially tense as the Bank of England's monetary policy committee begins its two-day meeting. American interest rates have been rising and many economists have been predicting a 0.25 percentage point rise in British rates to 6.25.

 Trevor Greetham, a strategist at Merrill Lynch in London said: "The move into high-tech stocks was a reflection of the feelgood factor. American consumers were up to their eyeballs in internet shares. Now that interest rates are rising we expect economies to slow."