Investors ponder global rout

Investors were relieved that the local market avoided a steeper fall yesterday, but concerns grew about the broad-based nature of the slump, with investors suddenly betting against the country's resource riches.

After the Dow Jones ped 7 per cent on Monday night - its biggest one-day points fall in history - the ASX200 index fell 206.9 points, or 4.3 per cent, to 4600.5 yesterday. The All Ordinaries dipped 207.9 points, also 4.3 per cent, to 4631.3.

Although it was the biggest one-day fall since January 22, when the ASX200 lost 7.05 per cent, it could have been worse.

Justin Gallagher, head of Sydney sales trading at ABN Amro, said 4.3 per cent "would usually have sparked fear and panic in the markets".

"Now there's still some of that but people are happy to be a little less reactive," he said.

The falls, which began in the US and spread across the world yesterday, came in response to the shock move by the American Congress to baulk at the Bush Administration's $US700 billion ($865 billion) bail-out plan for the finance sector.

Shares in Europe and Asia fell further last night, extending the worst world-wide sell-off in 21 years.

After the local market closed yesterday, the National Australia Bank revealed it would pay $400 million over five years to cover the possibility of a further $1 billion write-down.

In effect, it is paying to cut its exposure to $1.6 billion of complex credit derivatives, called synthetic CDOs.

The Australian market initially fell by more than 5 per cent, only to recover throughout the day - in part on hopes that the bail-out package could be revived later in the week.

However, it then ped sharply again before the close of trading.

Miners were hard hit, with commodities in freefall. The Reuters/Jefferies CRB Index of 19 commodities plunged 5.9 per cent, the biggest since 1956, according to Bloomberg.

BHP shed 9.46 per cent to $31. The takeover target Rio Tinto tumbled 11.5 per cent to $84.50, while its rival iron ore producer Fortescue Metals ped 16.8 per cent to $4.66.

Jamie Spiteri, from Shaw Stockbroking, said the miners were probably sold off after European investors arrived for work and saw the Australian market holding up relatively well.

Banks, hard hit early in the morning, recovered throughout the day. Macquarie Group crashed to $31.60, but climbed back to about $37.

Westpac ped $1.67 or 7.21 per cent to finish at $21.48.

The fall came as investors digested yesterday's independent expert report into its planned takeover of St George, which raised questions about St George's health as a stand-alone bank.

Credit markets continue to feel the stress, pushing out bank funding costs.

Second-tier banks such as St George are bearing the brunt of this. Shares in its rival Suncorp have ped 10 per cent in two days.

Yesterday's slump - the second in a row - prompted the Australian Securities Exchange to request an intra-day margin call, or the early delivery of collateral, from brokers and clearing houses.

Losing a trillion - Page 24

NAB takes hit - Page 25

Market report - Page 26