THE sharemarket has posted its biggest weekly fall since late May on worries about a protracted fiscal standoff in the US.
The benchmark S&P/ASX 200 Index fell 12.4 points, or 0.3 per cent, to 4336.8 on Friday. It fell 2.8 per cent for the week and has lost 5.1 per cent since marking 15-month highs in October. The All Ordinaries Index fell 10.5 points, or 0.2 per cent, to 4360.1.
A confluence of bad news has spooked investors, including Europe slipping into another recession and worries about the US recovery.
But the biggest weight on the market was what Washington will do about the "fiscal cliff" that threatens in the new year, with large automatic budget cuts and tax increases expected to weigh on the US economy if no deal is reached before then.
BBY client adviser Henry Jennings said several overseas factors had contributed to weakness on the local market. "Everyone is focusing on the US fiscal cliff, coupled with problems in Europe," Mr Jennings said. "We've also got this escalation in the Gaza Strip, with rockets fired at Tel Aviv. There's still a lot of uncertainty out there. Confidence is low and volumes are reflecting that."
Banking shares led losses, with ANZ falling 39?, or 1.6 per cent, to $23.66, Westpac down 0.9 per cent, Commonwealth Bank falling 0.7 per cent and NAB down 0.1 per cent.
But higher iron ore prices lent support to some of the miners after China announced its economy was turning the corner and was likely to meet its growth target for the year. Industrial output, exports and retail sales all beat expectations in October.
Rio Tinto rose 8?, or 0.1 per cent, to $56.90 and Newcrest Mining rose 1.1 per cent as the gold price held steady, but BHP Billiton fell 0.6 per cent, or 19?, to $32.93.
Whitehaven Coal fell 1.8 per cent to a record low of $2.74 after the company announced a decision to scale back its business development unit and Brisbane presence.
Iluka fell 12? to $7.79 following downgrades by brokers this week.
Some defensives gained, with retailer Wesfarmers and blood products maker CSL both rising 0.6 per cent.
"While selling pressures abated, there is still a tendency for traders to get into defensive assets," said CMC Markets senior trader Tim Waterer.
Clothing and camping equipment retailer Kathmandu rose 6? to $1.41 after it posted a 19.5 per cent boost in sales for the past 15 weeks.
Cash Converters shares rose 1? to 99? after the company said it expected to increase its short-term lending this financial year as smaller providers left the industry due to regulatory changes.
On Wall Street on Thursday, the Dow Jones Industrial Average fell another 0.2 per cent, taking this week's loss to more than 2 per cent so far amid worries about continuing gridlock in Washington over the fiscal cliff.
Europe's main stockmarkets retreated after news that the eurozone economy had fallen into recession again as a result of the region's sovereign debt crisis.