Australian stockmarket tumbles 3pc, $A at four-month low ahead of Wall St

Sovereign debt set to escalate and no one is left to bail out the Governments

• Michael Bennet
• From: The Australian
• August 08, 2011 4:33PM

AUSTRALIAN shares fell almost 3 per cent today, shaving $32 billion in value and closing below 4000 for the first time in two years.

After plunging 4 per cent on Friday, the benchmark S&P/ASX 200 index was down 119.3 points, or 2.91 per cent, at 3986.10 today, while the broader All Ordinaries index fell 113 points (2.71 per cent) at 4056.70.

Gold was pushed to a record as investors sought safety from falling markets across Asia following Standard & Poor's downgrade of a coveted AAA credit rating held by the US.

The S&P/ASX 200 opened down more than 2 per cent before it recovered ground to be 0.8 per cent lower just after noon. But the bears returned later in the afternoon to push the benchmark below the 4000-level for the first time since July 2009.

By today's close, panicked investors sent the bourse to a 25-month low on fears of a volatile Wall Street on the back of the first ever downgrading of US sovereign debt.

Today was the fifth consecutive trading session that the bourse closed lower and added to the $95bn wiped from the value of stocks last week.

Dow Jones Industrial Average futures dived over 300 points in screen trade, and were recently off 265 points. Surging gold and slumping oil future prices underscored investor concerns.

The Australian dollar also fell victim to rising global market tensions, sliding to its lowest levels since early April as investors took shelter after the S&P downgrade of US debt.

"The US ratings downgrade has unnerved an already jittery market," Westpac said in a market commentary.

Some ground was won back late in Asian trading for the Australian dollar, on early signs from Europe that some optimism may be returning to markets. Italian and Spanish bonds spreads tightened rapidly after the European Central Bank hinted it would buy the debt to stop the euro-zone debt crisis spreading.

Grant Turley, senior currency strategist at ANZ Bank, said the ECB will need to demonstrate clearly its intention to continue supporting the market, or the brief flurry of confidence may be short-lived.

At 5pm (AEST), the Australian dollar was at $US1.0354, down from $US1.0447 late Friday and off a 30-year high of $US1.1080 in late July. Against the Japanese yen, the Australian dollar was at Y80.685, down from Y82.06.

"Markets have been choppy and illiquid. The broad bias is for further decline in risk appetite...despite attempts by policy-makers to allay concerns," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.

CMC Markets chief market strategist Michael McCarthy said the losses were broad-based, with materials stocks faring the worst.

BHP Billiton was down $1.52 (3.99 per cent) at $36.60 while fellow mining giant Rio Tinto was down $3.37 (4.68 per cent) at $68.63.

Coal & Allied shares soared after its largest shareholders, Rio Tinto and Japan's Mitsubishi Development, made a non-binding proposal for CNA shares they did not already hold.

CAN shares surged $25.20 (27.69 per cent) to $116.20.

Mr McCarthy said investor confidence had been battered by a stream of negative news, but added that the sell-off had been overdone.

"Investors are moving from crisis resolution to the next disaster without pausing for breath," he said.

"Last week, the market was taken by concerns about the US economic recovery, that it was stalling and bringing the rest of the world into a recession.

"On Friday night, we saw jobs data (in the US) that directly contradicted that idea.

"So, overall, the numbers are not suggesting that there is a recession coming.
"And we're seeing corporate earnings coming through around the globe that are not consistent with the idea that the market is going backwards."

Mr McCarthy said there had been a big surge in trading volumes today, with more than double the usual contracts exchanged, and the futures market had flipped around wildly all day.

Preliminary national turnover was 3.15bn shares, worth $7.8bn, with 196 shares up, 1039 down and 313 steady.

Gold reached a record of $US1704.30 an ounce and the Australian dollar was also traded lower at $US1.0333 recently.

Among gold producers, AngloGold Ashanti put on 27c (3.4 per cent) to $8.21 but Newcrest was 38c weaker at $38.82.

Making market headlines today, JB Hi-Fi posted a near 8 per cent fall in net profit to $109.70 million and revealed plans to expand. JB Hi-Fi shares closed down 35c at $14.00.

The most traded stock by volume was Voyager Resources after the Mongolia-focused explorer announced a major new copper discovery in the South Gobi region.

Voyager finished up 0.5c (10.2 per cent) at 5.4c after almost 125m shares changed hands.

With AAP, Dow Jones Newswires