THE stockmarket ended a horror week in which worries about Europe's finances and a slowing Chinese economy saw investors abandon equities, taking the monthly loss to about $110 billion.
The benchmark ASX200 index lost 2.7 per cent on the day and 5.6 per cent for the week, notching the worst five-day return since September last year. The ASX200 shed 110.9 points for the day, the most this year, to end at 4046.5. The All Ordinaries fared much the same, losing 109.7 points, or 2.6 per cent, to close at 4098.8 points.
The dollar touched new lows for the year, sinking to US97.95? at one point. Interest rate futures markets are now assessing the chance of another 50 basis-point rate cut by the Reserve Bank when it meets on June 6 as a 75 per cent chance.
Investors are also pricing in another 125 basis points in cuts for the cash rate in 12 months' time. If it eventuates, the cash rate would drop to just 2.5 per cent, half a percentage below its lowest point during the global financial crisis.
IG Markets analyst Stan Shamu said investors were pricing in the worst case scenario in Europe and it was difficult to predict what would happen in coming weeks and months.
"People are now scared that we will get a lot of contagion from Greece and Spain and the situation will end very badly," he said.
The week began with the news that Greek political parties had failed to form a government and that the country will hold fresh elections on June 17. The prospect of weeks of doubt about whether a new government will emerge, and whether it will back the European Union-imposed austerity package, will likely dog financial markets.
In the meantime, investors have begun searching for the next European debt domino to fall, with Spain the most likely candidate.
Confidence that Australia's reliance on Asia to shield it from another European crisis is evaporating, now that signs of a slowing China get stronger by the day.
Major broking houses, including Goldman Sachs, are cutting their growth targets for China for this year. China's house prices fell in a record number of cities last month and car dealers posted inventory levels that foreshadowed deeper price cuts - just the latest in a string of bad news.
Australian Stock Report head of research Geoff Saffer said worries about China's economic slowdown will continue to have an impact on the market.
"We expect the Chinese story to continue as an overhang to the Australian market for some time," he said. "Until China implements wide-ranging stimulus measures we expect fears about a slowdown to continue. The short-term outlook is probably still bearish."
Miners have borne the brunt of the falls. BHP Billiton lost $1.31, or 4 per cent, to $31.46, and Rio Tinto lost $2.96, or 5.1 per cent, to $55.20 on the day.
Among the major banks, NAB lost $1.03 to $23.32, Westpac lost 81? to $20.41, ANZ lost 73? to $20.84, and Commonwealth Bank lost $1.62 to $49.40.
The spot price of gold was $US1572.40 an ounce, up $US24.27. The gold price rise provided one of the few bright spots on the day, with goldminer Newcrest up 3.8 per cent to $25.03.
Woolworths lost 1 per cent to $26.68 to be among the better performers of the top 50 stocks on the day, while Wesfarmers lost 2.1 per cent to $29.55. Telstra lost 1.7 per cent to $3.52.
Preliminary turnover was 2.03 billion shares worth $5.99 billion.