THE sharemarket lost more than half of 1 per cent yesterday, with mining stocks falling heavily after investors digested news that Australia's mining investment boom could be over.
Stocks linked to manufacturing also got whacked as new data confirmed global activity had contracted further.
Overall, the benchmark S&P/ASX 200 Index was down 24.7 points, or 0.57 per cent, at 4278.8.
Rumours circulated yesterday that a big broking house had pushed through a large "transition portfolio", out of resource stocks and into something more passive, as concerns about the outlook for iron ore prices raised fears more mining projects could be junked.
About $4.8 billion worth of stocks was traded with much of it due to panic selling.
It came a day after Fortescue Metals said it would defer its multibillion-dollar expansion plans, a move that would cost 300 jobs but save the company $300 million.
The reverberations it was the first such instance of a big project being junked that was already in play were still being felt by the close of trade yesterday, with Fitch Ratings agency downgrading the iron ore miner's outlook from stable to negative after the market had closed.
Fortescue lost 8.5 per cent in value, dropping 29? to $3.12.
The other miners lost ground too, with BHP Billiton slipping 51?, or 1.6 per cent, to $31.05, and Rio Tinto losing $1.03, or 2 per cent, to $49.34.
Analysts said a slowdown in global manufacturing new data showed the US manufacturing sector fell last month to its lowest level since July 2009 was feeding through to growth-linked stocks.
It led investors to pour their money into defensive stocks, with the healthcare sector doing particularly well, up 2.1 per cent.
"Investors are trying to find companies that have the capacity for structural growth," said Craig Turton, of Ord Minnett.
"CSL had a good day, up 3 per cent. It's got that structural growth, which will be unaffected by the global slowdown. Only about 14 per cent of its revenues are generated in Australia, and therefore it wins from a weakening Australian dollar."
Brambles slipped 2? to $6.82 after the pallets and containers supplier said it had entered this financial year in good shape despite uncertain economic conditions.
Caltex Australia lost 29? to $15.40 after the oil refiner raised $550 million from investors to help fund a restructure that includes the overhaul of its Sydney oil refinery.
News Corp shares were 27? higher at $23.22 after it nominated former Colombian president Alvaro Uribe and former US secretary of labour Elaine Chao to its board.
The media group also reported that Rupert and James Murdoch had part of their multimillion-dollar cash bonuses withheld as a result of the UK phone-hacking scandal. The company's non-voting shares rose 29? to $23.09.