Market posts fourth monthly loss in row

THE alarming prospect of a US loan default drove further losses on the sharemarket yesterday, completing its worst month since May last year.

The market has suffered four consecutive monthly losses, its poorest run since February 2009. The S&P/ASX 200 Index finished down 39.2 points at 4424.6, about 100 points below where it stood on the same day last year. The index shed 4 per cent in July.

AMP chief economist Shane Oliver said uncertainty about sovereign debt negotiations in the US had caused ''huge volatility'' for global equity markets. The world economy would suffer ''widespread damage'' if US leaders failed to reach a deal to borrow more money. ''If America doesn't agree to increase the debt ceiling in a reasonable time ? then government spending will have to be slashed,'' Dr Oliver said. ''Public servants in America won't get paid, people on welfare won't get welfare cheques. People who've had operations won't get payments from Medicare.''

Republican and Democrat leaders have until Tuesday to strike a deal to raise the US debt ceiling.

Dr Oliver said mining stocks would be among the hardest hit by a default. ''Materials are at the forefront of global demand so the worry is if the US doesn't come to an agreement, there'll be big cuts in spending and uncertainty about the US economic recovery,'' he said. The materials sector led the falls, dropping 1.4 per cent, and the financial sector shed 1 per cent. Macquarie Bank analyst Brian Redican said data released yesterday showing a fall in lending was another bad sign for the banks.

The prospect of an interest rate rise when the Reserve Bank meets on Tuesday is adding to pressure on finance stocks.

Mr Redican said a rate increase would be disastrous for retailers.

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The consumer discretionary index dropped 0.3 per cent. BHP Billiton was the worst performer, shedding 61? to $41.42. Rio Tinto dropped $1.20 to $80. The big four banks all fell, Westpac lost 23? to $20.42, ANZ 16? to $20.83, NAB 18? to $24 and CBA 17? to $49.27.