China and Europe weigh on local trading

The benchmark S&P/ASX 200 Index slumped 82 points, or 2 per cent, to 4051.

News of Spain's borrowing costs hitting a 14-year high left a bitter taste in investors' mouths, resulting in the local sharemarket opening 0.4 per cent lower.

Austock Securities senior client adviser Michael Heffernan said the weight of Europe's debt woes had taken its toll on Australian banks. "Our banks have been hit particularly hard due to the continuing financial problems happening in Europe," he said.

"There is an expectation that our banks are going to have higher funding costs."

But he said the profitability of Australian companies was still strong, and movement in the market was spurred by fear.

US markets dropped after an announcement that gross domestic product grew at a 2 per cent annual rate in the July-September quarter.

But Mr Heffernan said GDP growth in the US was a "very good result", considering the current economic climate. A sharp fall in China's purchasing managers' index, a gauge of the nation's manufacturing activity, resulted in resources and financial stocks suffering significant losses of between 2 per cent and 3.5 per cent.

The preliminary HSBC purchasing managers' index sunk to 48 in November, its lowest since March 2009. A reading below 50 implies a contraction.

BHP Billiton fell $1.09, or 3.1 per cent, to $34.51, and Rio Tinto lost $2.20, or 3.4 per cent, to $62.30.

The big four banks all recorded losses.

National Australia Bank dropped 76?, or 3.3 per cent, to $22.37, while Westpac lost 53?, or 2.6 per cent, to $19.83. ANZ retreated 44?, or 2.3 per cent, to $19.10, and Commonwealth Bank closed $1.13 lower at $46.27.

The price of an ounce of gold was $US1707.91 at the 5pm close in Sydney, up $24.87 from Tuesday's close of $US1683.04.

As Qantas and its unions continued their industrial dispute, the airline's shares shed another 5.5?, or 3.5 per cent, to $1.515. Shares in Virgin also dropped by 0.5?, closing at 36.5?.

Shares in the wealth manager IOOF Holdings slumped 62?, or 10.4 per cent, to close at $5.37, the lowest since October 6.

National turnover was 1.99 billion shares worth $4.78 billion, with 17 shares falling for every two that gained.

The dollar dropped to a six-week low of US97.56? yesterday afternoon before closing at 97.60?.