$50b question keeps investors guessing

Sharemarkets plummeted this week as investors responded to worrying or confusing news.

More than $50 billion was wiped from the Australian market on Thursday and Friday.

First there were concerns that the US Federal Reserve might begin slowing its quantitative easing sooner than expected.

US Fed chairman Ben Bernanke confused markets when he made contradictory statements about the likelihood of tighter monetary policy in the world's biggest economy.

Late last year, Dr Bernanke deliberately tied US monetary policy to the country's unemployment rate, saying the Fed would only consider tightening policy when the unemployment rate approached 6.5 per cent. Since then unemployment has fallen by half a percentage point, to 7.5 per cent, but not enough to think Dr Bernanke would be considering slowing his bond-buying program.

But, on Thursday, he spooked markets by saying that if the US economy continued to improve, and if that improvement looked likely to be sustained, then "we could, in the next few meetings ... take a step down" in the pace of asset purchases.

The remark was not well received, particularly by investors who have become hooked on the promise of waves of new money washing around. The news hit bond markets, which reacted like a gong, and currency markets whipsawed, with the dollar plummeting US2¢ in a session to about US96¢ (it has now fallen US7¢ in three weeks). And while the dollar was shedding skin, on the same day the head of Ford dropped its bombshell.

For the week, the benchmark S&P/ASX 200 Index tanked 197.3 points, or 3.8 per cent, to 4983.5, while the broader All Ordinaries index lost 195.5 points, or 3.8 per cent, to 4964.3.

Aside from Dr Bernanke's comments, there were concerns about softer than expected manufacturing conditions in China, with HSBC's flash purchasing managers' index for May falling to 49.6, from 50.4 in April. Anything below 50 means manufacturing activity is contracting.

The big miners took a hit, with BHP Billiton, Rio Tinto, Fortescue Metals and Atlas Iron all slipping.

Then there were fears Japan's whispered-about recovery would be knocked off course by a back-up in bond yields. The Nikkei lost over 7 per cent on Thursday, but it recovered slightly on Friday. Japan's sharemarket is still up 40.5 per cent year-to-date, thanks to efforts by the Bank of Japan to pull the economy out of its deflationary hole.

For the week, Leighton Holdings gained 9¢ to $18.10 after it said it was not concerned about the recent woes of mining services companies.

Myer lost 18¢ to $2.49. The company's sales have grown slightly, but boss Bernie Brookes said he still remained cautious about the future of Australian retailers.

Seven West Media shed 26¢ to $2.10 after the US private equity firm KKR said it planned to sell its 12 per cent stake.