Local shares had their worst week in six months as signs of improving economic conditions in the US made global investors nervous the Federal Reserve might start withdrawing its stimulus as early as this month.
The S&P/ASX200 Index lost 2.5 per cent over the week, its biggest weekly fall since early June. On Friday, the benchmark index dropped 12 points, or 0.2 per cent, to 5186 points, while the broader All Ordinaries index lost 10.9 points, or 0.2 per cent, also to 5186 points.
Qantas fell another 3.7 per cent to $1.03 after being stripped of its investment grade credit rating by Standard & Poor's a day after announcing it would cut 1000 jobs and flagging an expected half year loss of $300 million.
Australia's largest insurer QBE entered a trading halt at Friday's open ahead of an expected downgrade to its profit forecast. QBE shares last traded at $1.78.
The local sharemarket got a weak lead from the US where markets were lower after better than expected jobs and housing data led to fears the Federal Reserve could act on its plans to start reducing the value of its monthly stimulus.
But Fiducian Group investment manager Conrad Burge doesn't expect a reduction in stimulus to spark longer-term volatility in equity markets.
"The Fed has made it clear it will maintain highly expansionary policy for a long period of time, which is very positive for equity markets worldwide. Expansionary policies from central banks in Japan and Europe will also be supportive."
On Tuesday, the Reserve Bank elected to hold the official interest rate at a record low 2.5 per cent and commented that the "dollar remains uncomfortably high". At Friday's local close the dollar was buying US90.56¢, down from US90.89¢ at the previous week's close.
The central bank is hoping low interest rates and a depreciating currency will help stimulate growth, particularly in parts of the economy outside the mining sector.
On Wednesday, Bureau of Statistics data showed that during the September quarter gross domestic product grew at 0.6 per cent, below consensus expectations for a 0.7 per cent rise.
Pengana Global Resources Fund portfolio manager Ric Ronge said some of the selling over the past week was likely due to "people starting to lock down returns for the year and get ready to take a break from trading over the summer holiday season".
Financial services was the worst-performing sector over the week, down 3.5 per cent as the big four banks weighed on the bourse. Westpac dropped 4.2 per cent to $31.51, while Commonwealth Bank lost 3.4 per cent to $75.17. ANZ fell 2.9 per cent at $30.99, and NAB shed 3.2 per cent to $33.47.
Over the past week, mining heavyweight BHP Billiton dropped 1.7 per cent to $36.75, despite the spot price for iron ore, landed in China, strengthening $3.10 over the week to $US139.50 a tonne - defying analyst expectations for a seasonal dip.
"Most observers have been surprised by how well the iron ore price has held up. Iron ore prices will probably weaken next year as more supply comes but the impact of that could be offset by a falling Aussie dollar. But big producers like BHP Billiton and Rio Tinto will remain competitive even at a much lower commodity price."
Australia's biggest producer of iron ore, Rio Tinto gained 0.5 per cent to $66.41 over the week as investors endorsed a strategy presented on Tuesday to keep costs down, reduce debt, focus on iron ore production and plan to increase dividends.
Among other big stocks, Wesfarmers, owner of Coles, fell 2.9 per cent at $41.70, while Woolworths shed 2 per cent at $33.01, and Telstra Corporation dipped 1.6 per cent to $4.98.
Embattled mining services company Forge Group was the worst-performing stock, dumping 21.3 per cent to 59 cents.
Energy was the only sector to finish higher, up 0.8 per cent as the Brent crude oil price rose 1.4 per cent to $US111.26 a barrel. Santos added 3.9 per cent to $14.55, Oil Search rose 3.5 per cent to $8.28, and Woodside Petroleum gained 0.5 per cent to $37.56.
Whitehaven Coal was the best-performing stock, gaining 15.1 per cent to $1.87. On Monday the NSW-based coal producer announced it had extended the $1.2 billion debt facility established in December 2012 to fund the construction of its Maules Creek project.