The Australian sharemarket fell further into the red for 2012 after UBS cut its profit outlook for BHP Billiton and the Bank for International Settlements said central banks were facing the limit of their ability to boost economic growth.
Sentiment also soured after Germany poured cold water on news that Greece proposed trying to renegotiate its bailout terms, fanning investor jitters ahead of Spanish and Italian debt auctions tonight.
After dipping below the psychological 4000 point level in early trade, the S&P/ASX 200 index rallied to close 20.4 points, or 0.5 per cent, down at 4027.8 points as the eurozone crisis continued to cast a cloud of uncertainty over financial markets.
Reuters reported that Greece's new three-party coalition government said on Thursday it would renegotiate the terms of the 130 billion euro bailout deal but yesterday German Finance Minister Wolfgang Schaeuble dismissed the idea.
"The most important task facing new prime minister (Antonis) Samaras is to enact the programme agreed upon quickly and without further delay instead of asking how much more others can do for Greece," Mr Schaeuble told Bild am Sonntag newspaper.
This view also dampened optimism ahead of the European Union summit which starts on Thursday.
Last week Spanish bonds rallied strongly, with the 10-years falling from 7.15 per cent to 6.38 per cent on expectations the European Central Bank and financial stability fund would buy up bonds to contain Spanish and Italian funding costs
The BIS said in its annual report that five years on from the outbreak of the financial crisis the global economy was still unbalanced, with "interacting weaknesses" continuing to amplify each other, raising the need for vicious cycles to be broken.
It could be accomplished by "cleaning up and strengthening banks at the same time as the size and riskiness of the financial sector are brought under control".
"Only then, when balance sheets across all sectors are repaired, can we hope to move back to a balanced growth path."
"Both conventionally and unconventionally, accommodative monetary policies are palliatives and have their limits," the report said.
The Shanghai composite index was down 0.9 per cent at the close of the ASX while Japan's Nikkei index was off 0.7 per cent.
The Australian dollar reversed tentative early gains and was unchanged at $US1.0035 as safe-haven demand supported the US dollar.Two US Federal Reserve officials played down the need and effectiveness of a third round of quantitative easing, with James Bullard saying there was a "pretty high hurdle" before it would be implemented.
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