$30bn down the drain

In the first session of trading since the US lost its AAA credit rating, the benchmark ASX 200 Index yesterday plunged a further 2.9 per cent, dropping under 4000 points to 3986.1.

Panicked investors have now driven share prices 20 per cent lower than the April high, a fall that takes the market into "bear" territory.

The Australian dollar dropped to a four-month low of US103.55? as investors bet the Reserve Bank could make an emergency cut in interest rates.

In early trading yesterday, European stocks resumed a selloff as Standard & Poor's downgrade of US debt overshadowed the European Central Bank's purchase of Spanish and Italian government bonds.

The benchmark Stoxx Europe 600 Index dropped 1.9 per cent in London, after earlier rallying as much as 0.8 per cent.

Finance ministers and central bank governors of world's 20 largest economies signalled they would do whatever it took to support financial stability and growth.

"We, the finance ministers and central bank governors of the G20, affirm our commitment to take all necessary initiatives in a co-ordinated way to support financial stability and to foster stronger economic growth in a spirit of co-operation and confidence," they said last night.

In Australia, traders are betting this could include cuts of 1.25 percentage points in interest rates, despite the Reserve's concerns about inflation.

It is believed Treasurer Wayne Swan has briefed ministerial colleagues that Australia would not be immune from a world slowdown, despite strength in Asia.

Mr Swan told colleagues the planned return to budget surplus by 2012-13 would be much harder, but reaffirmed the government's commitment.

After the International Monetary Fund said the government could delay the return to surplus if another stimulus package was needed, S&P said Australia could afford a second round of stimulus spending if needed.

Delaying a return to surplus by a year or two would not in itself spark a downgrade in Australia's AAA rating, S&P said.

Deloitte Access Economics director Chris Richardson said a surplus in 2012-13 was achievable, but should not be pursued for its own sake.

"Don't die in a ditch over a promise of a surplus if that turns out not to be what the economy needs," he said.

With analysts predicting the uncertainty has further to run, the sharemarket is now at its lowest point in more than two years.

The crash of recent weeks is expected to further weaken consumer confidence and is likely to have eroded all of last year's 8.9 per cent gains in the typical super fund.

It is believed Mr Swan said the unemployment rate could hover about 5 per cent, a trend that was given more weight yesterday by ANZ figures showing job advertisements had fallen in three of the past four months.

The US Federal Reserve was tipped to announce fresh moves to stimulate its ailing economy tomorrow. These could include another round of buying its own government bonds, known as quantitative easing.

The Coalition said yesterday it would be harder for Labor to put together an economic stimulus package if one were needed.

Acting Opposition Leader Warren Truss accused federal Labor of squandering the surplus it inherited from the Coalition and warned more borrowing could take Australia "down the same path" as Greece, Italy and Spain.

Mr Swan said the opposition was trying to talk down the economy. "Facts are facts: Greece has the lowest credit rating of any country, while Australia has the highest," he said.

White Funds Management managing director Angus Gluskie said with investors fearful of signs that economic activity was not improving, the onus was on governments to devise a plan that could support battered market confidence.

"Investors have very little visibility about what's going to support markets. This suggests that we may well see soft or weak markets for a month or more until such time as governments have enunciated their strategy sufficiently," Mr Gluskie said.