The Australian sharemarket had its biggest one-day fall in four months as a drop in Australian business confidence and postponement on Greece’s aid disbursement triggered fears of debt default and a wave of safe haven demand for the US dollar and the yen.
Wall Street finished flat last night on signs of compromise between US politicians over the “fiscal cliff”, but sentiment turned negative in the Asian session after the European Union finance ministers’ meeting failed to reach agreement to release funds to enable Greece to meet a 5 billion euro bond maturity on Friday.
The S&P/ASX dropped steadily throughout the session, before closing 68.2 points, or 1.5 per cent, at 4379.8 points, with another sharp fall in Chinese stocks compounding the negative sentiment.
The NAB business confidence index fell from 0 to mins 1.3 points as capital spending fell to three-year lows.
The Shanghai composite index was down 1.4 per cent at the close of the ASX after the official Xinhua news agency reported that the government may expand a property tax trial while a broker warned retail sales could be weak this month.
Japan’s Nikkei index was off 0.5 per cent as the stronger yen weighed on exporters.
Eurozone sovereign debt jitters were fanned by disagreement over requirements for Greece to reach a sustainable debt level, with Greece claiming it had been given a two year extension to 2022 despite opposition from IMF chief executive Christine Lagarde.
Forex.com analyst Chris Tedder said the current disagreement between Greece’s creditors would only complicate the situation.
“Thus, it may only be a matter of time before the market becomes fed-up with the infighting in Europe, some of which we saw today in the form of a big EUR sell-off,” he said.
Markets are nervously awaiting Germany’s ZEW business confidence survey to see if there is any sign of an end to the weak trend.
The Australian dollar dipped 0.3¢ to $US1.04, but climbed 0.4¢ to a 10-week high of 82.07 euro cents as the unitary currency fell to a two month low against the US dollar.
Gold slipped $US10 to $US1724 an ounce, while copper fell 0.6 per cent to $US7590 a tonne.
The broader All Ordinaries index was down 65.7 points, or 1.47 per cent, at 4404.2.
On the ASX 24, the December share price index futures contract was 63 points lower at 4394, with 31,776 contracts traded.
OptionsXpress market analyst Ben Le Brun said the Australian share market experienced selling across all sectors on Tuesday.
He said the sell-off had gained momentum during the session.
"We’ve got the EU (European Union) ministers trying to flesh out a deal for Greece. We’ve got the US fiscal cliff, and we’ve had a pretty consistent outperformance (of the Australian market) against the US (market) for the last couple of weeks, so we might be coming back down to earth with a bit of a thud,” Mr Le Brun said.
Investors were waiting to see if there would be an interest rate cut in Australia in December, and some recent bad corporate news on the local front added to a general air of uncertainty.
Among the major banks, ANZ was off 40 cents at $24.05, National Australia descended 53 cents to $23.11, Westpac dumped 55 cents at $24.80, and Commonwealth Bank surrendered 70 cents to $58.70.
Elsewhere in the financial services sector, global insurer QBE was 88 cents, or 7.46 per cent, lower at $10.92 following several broker downgrades and speculation that a capital raising that the company was undertaking would be insufficient, Mr Le Brun.
QBE shares have fallen sharply after the company on Monday downgraded its earnings expectations in the wake of superstorm Sandy in the US.
Among resource stocks, BHP Billiton was 55 cents lower at $33.75 as it was given until 2016 to go ahead with the expansion at the Olympic Dam mine in South Australia.
Rio Tinto lost 97 cents at $57.67 as it said a planned strike at its Blair Athol coal mine over claims of unfair redundancy payments would have minimal impact before the mine closes.
Among other stocks, Seven West Media jumped 13 cents, or 11.21 per cent, to $1.29 after it told shareholders it expects to record lower first half earnings in a difficult media market, and outlined cost-cutting targets.
Engineering firm UGL dipped four cents to $10.15 after it said it still expected to post similar full year results to those of 2012, with trading conditions remaining challenging.
Incitec Pivot was 11 cents higher at $3.02 as it said it was taking steps to reduce the risk associated with its fertiliser business while continuing to focus on expanding its explosives business, especially in Asia.Preliminary national turnover was 1.63 billion shares worth $4.62 billion, with 661 stocks down, 301 up and 360 unchanged.