INVESTORS wiped $21 billion off the value of Australian shares yesterday after a fresh outbreak of fears for the eurozone's future led to the sharpest market slump in almost two months.
The S&P/ASX 200 Index fell 70.2 points, or 1.7 per cent, to 4128.9 and the dollar shed US1?, as sentiment soured in response to a surge in Spain's borrowing costs.
Government bonds issued by Spain the fourth-biggest economy in the eurozone had last night climbed to a record high above 7.5 per cent, raising fears the country may need a full-scale bailout.
Last month Spain's banks were thrown a ?100 billion lifeline by eurozone members, but there are worries that if current conditions remain, the country's government will be locked out of financial markets.
The surge sent fears rippling around the world, with Australian mining stocks sold off heavily and the dollar falling to US103.12?, down from US104.09? on Friday.
Octa Phillip director of equities Andrew Sekely said the market had suffered one of its biggest one-day falls in recent months due to debt fears in Europe and a local report about the end of Australia's mining boom.
"It's a combination of overseas influences and negative comments coming out of Europe and the local press," Mr Sekely said.
US stocks fell about 1 per cent on Friday, following renewed concerns about Spain after its borrowing costs rose past the mark that is considered too high to be sustainable.
Just as European ministers approved a rescue of Spain's troubled banks, the region of Valencia revealed it would become the first to tap a new fund designed to provide liquidity to the country's 17 semi-autonomous regions.
And locally, a Deloitte Access Economics report found the mining boom was about to peak and an economic slowdown would be inevitable.
Woolworths was one of the only local stocks to buck the downward trend, beating expectations to lift its sales by 4.7 per cent to $56.7 billion in the 2012 financial year.
Woolworths shares closed 27? higher at $27.89.
Shares in the big miners were all substantially lower after the Deloitte report came out.
BHP Billiton was 81? lower at $30.55, Rio Tinto was $1.87 lower at $51.52 and Fortescue was down 31? at $4.05.
The four major banks were all weaker.
Westpac was 30? lower at $22.55, ANZ lost 25? to $22.82, National Australia Bank was down 30? to $23.69 and Commonwealth Bank 38? lower at $54.74.
The price of gold in Sydney was $US1576.35 an ounce, down $US9.64 on Friday's close of $US1585.99.
National turnover was 1.36 billion securities worth $3.2 billion, with 245 stocks up, 653 down and 347 unchanged.