Market's worst day since 1987

Over the week, the benchmark S&P/ASX 200 Index slumped 15.7% and for the first time in years the collective worth of the top 200 companies was less than $1 trillion.

World markets are set for their worst week since 1970: the Japanese, Hong Kong, British and US markets have capitulated, and at the start of trading in Europe last night stocks shed up to 10% of their value, before staging a partial recovery.

The value of world sharemarkets has shrunk by more than $US28 trillion in less than a year, from about $US62.5 trillion to near $US34.5 trillion.

And the Australian dollar has lost 35% of its value in just 10 weeks, buying about US66.

"It's relentlessly grim," said ABN Amro chief economist Kieran Davies.

Worldwide, central banks have cut interest rates and provided a constant stream of liquidity to cash-strapped banks.

The British Government has taken equity stakes in eight major banks, and the US Government has passed legislation that will make $US700 billion available to buy up banks' inferior assets.

But the markets are slipping even further. Market volatility, as measured by the Chicago Board Options Exchange VIX Index is at a record. People are scared.

"It's the speed at which the slowdown is approaching," said one fund manager, pointing to the risk of recession in most developed countries.

Others point to the economic damage caused by the state of the credit market. Banks are unwilling to lend to one another because they are worried they won't get their money back. So the entire banking system is in lock-down.

"This is the third great bear market of the last century," said New York Times columnist David Leonhardt.

Acknowledging the difficult market environment, the Reserve Bank of Australia this week cut the official cash rate by 1 percentage point in the biggest single cut since May 1992.

But unemployment has edged up and consumer confidence is down - a negative for retailers who have already locked in Christmas inventories.

Several large real-estate developments have been put on hold, as have some companies' expansion plans.

And sharemarket losses create a direct wealth effect. "Our hip pocket has shrunk quite dramatically over the course of this year," said Ord Minnett investment strategist Simon Kent-Jones.

Over the weekend, finance ministers from the group of seven industrialised nations will meet to discuss the crisis.

An emergency meeting of finance ministers from the G20 group of nations has been called, and the annual meetings of the International Monetary Fund and the World Bank will also be held.

"I wouldn't be surprised if we see some radical solutions proposed," Mr Kent-Jones said.

However, the chief executive of boutique fund manager Lincoln Indicators, Elio D'Amato, said the market purge was positive, because it would create more shareholder value in the long run.

"You can only build so much on a house of straw," he said, explaining that the 20%-plus returns achieved in recent years were not sustainable.

Yesterday, the S&P/ASX 200 Index lost 360.2 points to 3960.7. It was the first time the measure had closed below 4000 points in 31/2 years.

The country's biggest company, BHP Billiton, lost 7%. Among the banks, National Australia Bank fared worst, with a 12.4% fall. ANZ fell 8.1%, Commonwealth Bank lost 6.7% and Westpac was down 6.1%.

Research released by the Boston Consulting Group showed that even before this month began, the value of the global banking industry had fallen from about $US8.3 trillion to $US5.7 trillion this year.

And the global financial crisis has ed the banking hierarchy. Commonwealth Bank, which used to be the world's 24th-biggest bank by market capitalisation has fallen to No. 29.

But the country's large retailers also fell yesterday in what appeared to be indiscriminate selling. Wesfarmers, owner of Coles Supermarkets, fell 13.4%, and Woolworths was down 10.7%.

Among the top 200 stocks, only one gained. Babcock & Brown Capital, a satellite of the beleaguered investment bank Babcock & Brown rose 2 to $2.35.

Southern Cross Equities' head of institutional dealing, Charlie Aitken, warned conditions were unlikely to improve soon.

"There will be trading bounces . but the fundamental recovery will be prolonged and painful," he said.

Unlike other markets, the Australian Securities Exchange does not impose an automatic cut-off if shares fall below a certain point.

"The ASX does not have an automatic circuit breaker," an ASX spokeswoman said. However, if the market became disorderly rather that just volatile, the ASX would respond to any request by the Australian Securities and Investments Commission or the Government to halt trading.

A spokesman for ANZ said the bank had made several margin calls "to investors with the most highly geared portfolios".

However, the vast majority of those who borrowed to buy shares were in the clear. "We are encouraging our customers to monitor their portfolios and take steps to rebalance as required," the spokesman said.

MARKET BLOODBATH

Worst day for S&P/ASX 200 Index, which fell 8.3%. (The index began in 1992.)

Hang Seng fell 7.2%, while the Nikkei lost 9.6% yesterday. Over the week, they were down more than 17% and 24% respectively.

Australian market lost 15.7%

of its value during the week.

Of the 2234 companies listed on the Australian Securities Exchange, 717 hit yearly lows. None recorded a yearly high.

Market capitalisation of world markets has fallen about $US28trillion since reaching a peak of $US62.5trillion in October last year. It is now about $US34.5 trillion.