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Markets battered, drawn and quartered

World's key stockmarkets suffer their worst quarterly result since the peak of the global financial crisis, posting double-digit percentage losses.

World's key stockmarkets suffer their worst quarterly result since the peak of the global financial crisis, posting double-digit percentage losses.

THE world's key stockmarkets suffered their worst quarterly result since the peak of the global financial crisis, posting double-digit percentage losses as the sovereign debt crisis in Europe and fears of a global slowdown overshadowed efforts by the US to pull out of its malaise.

Australia was caught up in the global sell-off, notching up a loss of 12.7 per cent for the September quarter, pulling down superannuation returns.

The poor three-month performance was driven by European markets, with London's FTSE down 13.7 per cent over the quarter - its worst quarter in nearly a decade - and Germany's DAX down 26 per cent. In the US, helped by a 2.2 per cent selldown on Friday, the Dow Jones recorded a quarterly loss of 12.1 per cent, its worst quarterly loss since the end of 2008.

Investors globally dumped stocks during the quarter on concerns that Europe's debt crisis was running out of control, threatening to hurt growth even in Asia's stronger economies.

''Europe sits precariously on the edge of a recession,'' said AMP Capital senior economist Bob Cunneen. ''Financial markets need to see a more convincing resolution of Europe's sovereign debt woes through a combination of a larger bailout fund, aggressive central bank buying of vulnerable debt and a recapitalisation of the European banking system.''

Complicating the outlook for Europe, figures released on Friday show annualised inflation in the euro zone jumped unexpectedly to 3 per cent in September from 2.5 per cent in August.

This creates a dilemma for European Central Bank chief Jean-Claude Trichet, who chairs his final policy meeting this week.

Mr Trichet must decide whether to reduce interest rates to face a weak economy despite rising prices.

Although investors hope that major central banks will ease monetary policy in an effort to rekindle growth, the growth of inflation in the euro zone will make a rate cut from the ECB less likely.

The rising outlook for Europe's inflation comes on the heels of reports in the past week showing declining consumer confidence in Europe and evidence that much of the regional economy is slowing down.

In Asia, the Hang Seng Index plummeted 21 per cent in the quarter, while Japan's Nikkei Index was off more than 11 per cent.

Worrying for Australia, a report last week showed that a gauge of Chinese manufacturing shrank for a third month, the longest contraction since 2009, as measures of new orders and export demand fell.

Economists expect Australia's Reserve Bank to leave the official cash rate at 4.75 per cent, when the board meets tomorrow. Although they are divided over whether the cash rate will go down before the end of the year.

The RBA seems to be torn between doubts about global economic growth and the high inflation driven by rising prices for Australia's mining commodities.

Futures markets suggest a weak opening on the Australian market. The December share price futures contract was 81 points lower at 3919 points.

Activity on the Australian market is expected to be lighter than usual today, with public holidays in New South Wales, South Australia and the ACT. The local currency ended the offshore session at US96.75?, down from Friday's local close of US97.23?.

With Agencies


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