Fortescue factor drags market lower

THE sharemarket closed lower yesterday, dragged down by a late plunge in Fortescue Metals.

THE sharemarket closed lower yesterday, dragged down by a late plunge in Fortescue Metals.

The S&P/ASX 200 Index fell 21.9 points, or 0.5 per cent, to 4339.4.

The materials sub-index dropped 0.7 per cent, while financials and energy both lost 0.4 per cent. Telecommunications was the only sub-index to post gains, adding 0.5 per cent.

Stocks in iron ore miner Fortescue Metals spiralled down during the final half-hour of trade. It finished 48?, or 13.8 per cent, down at $2.99.

BBY analyst Mike Harrowell said "the penny was dropping" among investors about Fortescue's precarious position.

If Fortescue breached its loan agreements, all of its debt, about $9 billion gross, would be payable immediately.

"Once you're in breach of your [covenant] ratios, all debt is payable," Mr Harrowell said.

BHP dropped 7?, or 0.2 per cent, to $32.78 while Rio Tinto lost 4?, or 0.07 per cent, to $55.05.

The market had been trading slightly lower before the drop from Fortescue, as investors waited on a US Federal Reserve meeting, where chairman Ben Bernanke is expected to announce a new round of quantitative easing.

"It does seem like there was a lot of positioning ahead of the FOMC [Federal Open Markets Committee] meeting," said Stan Shamu, market strategist at IG Markets. "No one really wants to overcommit. They're not too sure what's happening."

Mr Shamu said investors wanted more details from Mr Bernanke on how the Federal Reserve would act on QE3.

"Judging from recent price action in the market, it seems like everyone is trying to price in a positive outcome."

All the big four banks posted losses yesterday. Westpac dropped 16?, or 0.7 per cent, to $23.80, NAB lost 12?, or 0.5 per cent, to $25.28, CBA fell 4?, or 0.1 per cent, to $55.02 and ANZ slipped 6?, or 0.25 per cent, to $24.14.

Myer reported a full-year earnings fall of 14.3 per cent, marginally better than its guidance of 15 per cent provided earlier this year. The stock suffered as the department store failed to provide any plans to tackle the tough retail environment, dropping 2?, or 1.1 per cent, to $1.83. Rival David Jones fell 5?, or 2.1 per cent, to $2.35.

In the media sector, the competition watchdog delayed a decision on the potential acquisition of Consolidated Media by Kerry Stokes' Seven Group amid concerns about TV sports rights. Seven fell 5? to $7.65, while ConsMedia slipped 1? to $3.41.

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