MORE THAN $27 billion was wiped off the sharemarket yesterday in a brutal day of trading after investors reacted severely to news of a big political left turn in Europe at the weekend, and weak US employment data for April.
It was the biggest one-day fall on the local bourse in 4? months. Ten-year government bonds hit a 50-year low and the dollar lost more than US1?.
Uncertainty rattled sentiment as stockmarkets reacted with alarm to the Socialist candidate Francois Hollande's victory in France's presidential election and the routing of Greece's two-party coalition, which had imposed harsh austerity measures in return for an international bailout.
There are new concerns about the eurozone's austerity drive, threatening a fragile political consensus that has kept Europe's currency bloc intact throughout more than two years of crisis.
Resource and energy stocks were hit hard, with BHP Billiton falling by $1.46 to $34.57, and Rio Tinto losing $2.91 to $62.
The major banks all lost ground but were not hit as badly, with the financial sector outperforming the broader market, falling by 1.4 per cent.
Commonwealth Bank fell by 56? to $52.06 ANZ fell by 34? to $23.10 NAB lost 43? to $24.71 and Westpac fell 19? to $22.72.
Macquarie Bank lost $1.45 to close at $27.36. Telstra dropped 5? to $3.56. Overall, the benchmark S&P/ASX200 index fell by 94.7 points, or 2.15 per cent, to 4301.3. The broader All Ordinaries index was down by 97.8 points, or 2.19 per cent, at 4361.6.
US employment data contributed to the unease after only 115,000 new jobs were created in April, fewer than the 165,000 new jobs created in March, sparking fears of a slowdown in the world's biggest economy.
"You could see the focus of flows was going into income securities as a proxy for bonds, and then the stocks which are cyclical, or perceived to be growth stocks, were getting hit hard," the director of Clime Investment Management, John Abernethy, said.
A string of positive local data failed to calm investors. Retail sales rose by the most in 11 months in April. After adjusting for inflation, retail trade was up by 1.8 per cent in the March quarter, the biggest gain in almost three years.
Residential building approvals rose by 7.4 per cent to 11,501 units in March, compared to a downwardly revised 10,710 units in February. In the year to March, building approvals were down by 15 per cent.
That news failed to give the dollar a boost, with the currency falling by more than US1?, trading at US101.53? at the close, down from US102.64? on Friday.
"It's symptomatic of the mood of the market," a senior Westpac currency strategist, Sean Callow, said.
Despite investors' concerns, fund managers said yesterday was a day to buy stocks.
"We are seeing opportunities for oversold stocks," ATI Asset Management's head of research, David Liu, said. "We'd like to think that the fundamentals remain intact for the majority of Australian stocks.
"These types of issues impact sentiment rather than the fundamentals of companies, so we've probably been net buyers today."
ANZ's senior economist Shane Lee said the bond market had rallied as traders took to safe-haven assets.
On the local market, the explosives supplier Orica was down by 14? at $26.40, after chemical leaks at its ammonia plant near Newcastle contributed to a 4 per cent drop in the company's first-half net profit.
Whitehaven Coal was 31? lower at $4.60 after it launched a $172 million offer for the NSW explorer Coalworks. Coalworks gained 14? to close at 99.5?.
The building products supplier Alesco rose by 6? to close at $2.10 as it urged its shareholders to take no action on a $188 million takeover offer by the Dulux Group until it has been given further details of the offer.
Leighton Holdings' shares were down by 71?, or 3.56 per cent, at $19.25, after the completion date for Brisbane's Airport Link toll road was pushed back by almost two months.