MORE than $27 billion was wiped from the sharemarket in a brutal day of trading yesterday after investors reacted to news of a big political left turn in Europe on the weekend, and weak US employment gains in April.
It was the sharemarket's biggest one-day fall in
4? months, with 10-year government bonds hitting a fresh 50-year low and the dollar shedding more than US1?.
Fear and uncertainty drove sentiment as markets reacted with alarm to Socialist candidate Francois Hollande's victory in France's presidential election and the routing of Greece's two-party coalition, which had imposed harsh austerity measures in return for an international bailout.
The two elections threw a big question mark over the future of the region's austerity drive, threatening a fragile political consensus that has kept Europe's currency bloc intact through more than two years of crisis.
Spooked Australian investors ran for the exits, hitting resource and energy stocks hit particularly hard. BHP Billiton fell $1.46 to $34.5 and Rio Tinto dropped $2.91 to $62.
The big banks all lost ground, but were not hit as hard. The financial sector outperformed the broader market, dropping 1.4 per cent.
The S&P/ASX 200 Index finished down 94.7 points, or 2.2 per cent, at 4301.3.
US employment data issued on Friday night contributed to the unease. Only 115,000 new jobs were created in April, well below the 165,000 new jobs in March, sparking fears that the recovery of the world's biggest economy was running out of steam.
"You could see the focus of flows was going into income securities as a proxy for bonds and then the stocks which are cyclical, or perceived to be growth stocks, were getting hit hard," said Clime Investment Management director John Abernathy.
"The income stocks property trusts, infrastructure, the banks and Telstra were holding up quite well."
A string of positive local economic data failed to calm investors.
In good news for the beseiged retail sector, retail sales grew by the most in
11 months in April. After adjusting for inflation, retail trade rose by 1.8 per cent in the March quarter the biggest gain in almost three years. Sales for March rose 0.9 per cent, well above the expected 0.2 per cent gain.
And residential building approvals rose 7.4 per cent to 11,501 units in March, compared with a downwardly revised 10,710 units in February, seasonally adjusted. In the year to March, building approvals were down 15 per cent.
But the news failed to lift the dollar. At the close it was at US101.53?, down from US102.64? on Friday.
"It's symptomatic of the mood of the market," said Westpac currency strategist Sean Callow. "There's just a bit too much accumulated pessimism to turn around."
Despite the concerns of investors, fund managers said it was a day to buy stocks.
"We are seeing opportunities for oversold stocks," said ATI Asset Management's David Liu.
"We'd like to think the fundamentals remain intact for the majority of Australian stocks. These types of issues impact sentiment rather than the fundamentals of companies. So we've probably been net buyers today."