Share stampede blamed on fear and irrationality

Investors scurried for cover as global storm clouds hammered the S&P/ASX 200 index below the 4000-point psychological barrier and the dollar to a four-month low.

But a Melbourne man, who manages his own superannuation fund, was quick to pull out his umbrella in a stroke of good fortune.

The 64-year-old, who hopes to retire soon, cut his exposure to equities from 38 to 15 per cent before the sharemarket began to plummet about a month ago.

The man, who preferred not to be named, said his decision was based on luck and a "conservative and balanced" approach which would allow him to reinvest in the sharemarket at a lower price. But he said it was hard to predict the market's next move.

"I don't understand it and the people who make a living out of it are either extremely lucky of extremely talented," he said.

"I am actually happy with the way the market is going because it presents me with an opportunity to get back in at a lower price. It might sound selfish, but that's the way I feel at the moment," he said.

The S&P/ASX 200 index fell 119.3 points, or 2.9 per cent, to 3986.1 points - its lowest in almost two years. The losses added to the $95 billion erased from the value of the local market last week and followed Standard & Poor's cutting the US's prized AAA credit rating to AA - the first time its economy has had its debt downgraded.

A Macquarie Private Wealth division director, Martin Lakos, said "there was a degree of irrational thought in the market". "These markets are moving totally on momentum and a lot of fear ... It does look heavily oversold. The markets are not paying any attention to value of fundamentals at the moment."

All of the ASX 200's sector indices finished in the red. Material stocks took the biggest battering.

BHP Billiton tumbled $1.52, or 4 per cent, to $36.60, while Rio Tinto fell $3.37, or 4.7 per cent, to $68.63.

The Australian dollar fell by almost a full US cent to a four-month low as America's credit downgrade caused traders to dump risky investments.

At the close of trade it was trading at $US1.035, down from almost $US1.11 a week earlier.