Fortescue sets the downbeat tone

THE sharemarket lost more than 0.5 per cent yesterday after Fortescue Metals, the world's fourth-biggest iron ore miner, told the ASX it was planning to cut jobs and slash spending to save more than $300 million.

THE sharemarket lost more than 0.5 per cent yesterday after Fortescue Metals, the world's fourth-biggest iron ore miner, told the ASX it was planning to cut jobs and slash spending to save more than $300 million.

The announcement was a direct response to precipitous falls in iron ore prices in recent weeks, and it came moments before the market opened, setting the tone for the day.

Financial stocks weighed heavily, with ANZ dropping 50?, or 2 per cent, to $24.34, and Westpac falling 53?, or 2.1 per cent, to $24.32.

They were the two worst-performing stocks on the S&P/ASX 20. Overall, the benchmark S&P/ASX 200 index lost 26.2 points, or 0.6 per cent, to 4303.5.

CommSec market analyst Juliette Saly said investors were looking ahead to tomorrow's European Central Bank meeting and the release of US employment figures later this week.

As a result, trading volumes were low yesterday, with investors preferring to stay on the sidelines.

"The [US employment] number at the end of the week is always a major mover for global markets," Ms Saly said. "Volumes are still very low so we are not seeing that many trades go through."

The dollar hit a six-week low, touching US1.02.41? in the morning, before rising slightly after the Reserve Bank kept the cash rate steady at 3.5 per cent.

Economists said that despite the small immediate rise, the dollar would probably continue to lose ground against the greenback as conditions in Europe improved.

"The Australian dollar spiked higher, but we suspect on short-covering rather than reacting to a hawkish RBA message," Asia- Pacific macro strategist at TD Securities, Alvin Pontoh, said.

The Reserve Bank's monthly policy statement said growth in China had become weaker, adding to uncertainty about near-term growth, with growth in the Asian region being dampened by "more moderate" Chinese expansion, and the weakness in Europe.

But the big miners brushed off any concerns about a slowdown in China, with BHP Billiton up 0.47 per cent and Rio Tinto up 1.04 per cent. Fortescue fell 15?, or 4.21 per cent, to $3.41. In percentage terms it was the second-largest decline among stocks in the S&P/ASX 50.

"We know that iron ore prices have been falling for a few months and obviously had a big impact on Fortescue's bottom line," Ms Saly said.

Commonwealth Bank was off 36?, or 0.6 per cent, at $54.46, and National Australia Bank fell 20? to $25.10.

Today, the Bureau of Statistics releases the June-quarter national accounts, which includes gross domestic product data. The median forecast is for a 0.8 per cent rise in GDP in the quarter, and for a 3.7 per cent pace for the year to June.