September quarter results worst since '08

Australia was caught up in the global sell-off, notching-up losses of 12.7 per cent during the quarter, pulling down superannuation returns.

The poor performance was driven by European markets, with London's FTSE down 13.7 per cent over the third quarter - its worst quarter in nearly a decade - and the DAX in Germany slumping 26 per cent.

In the US, spurred on by a heavy 2.2 per cent sell-down on Friday, the Dow Jones recorded a quarterly loss of 12.1 per cent, capping its worst quarterly loss since the end of 2008.

Investors globally dumped stocks during the September quarter, concerned that Europe's debt crisis was spreading out of control, threatening to hurt growth even across Asia's stronger economies.

"Europe sits precariously on the edge of a recession," AMP Capital's senior economist, Bob Cunneen, said. "Essentially, 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."

Figures released on Friday showed annual inflation across the euro zone jumped unexpectedly to 3 per cent in September from 2.5 per cent in August creating a dilemma for the European Central Bank chief, Jean-Claude Trichet, who chairs his final policy meeting this week.

Mr Trichet must now make a difficult call on whether to reduce interest rates to face a weak economy despite rising prices. With firm hopes by investors that major central banks ease monetary policy in an effort to rekindle growth, inflation creeping up in the euro zone is sure to disappoint as it probably makes 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.