Syrian war jitters and the ongoing nose-dive in emerging markets continued to unnerve investors, driving the Australian sharemarket firmly into the red by the close of trade.
Following the 1.5 per cent drop on Wall Street last night the S&P/ASX 200 index fell 1.3 per cent at its worst, before rallying to close 54 points, or 1.05 per cent, down at 5087.2 points as Indian and Indonesia stocks bounced off fresh lows.
US Federal Reserve tapering fears remained on the back-burner, but a rise in US consumer confidence and firmer house prices raised the likelihood the Fed would begin scaling back its purchases next month.
Australian government 10-year bond yields slipped 3.7 points while US 10-years dropped 9 points to 2.70 per cent on safe-haven demand.
The Australian dollar fell 0.8¢ to a low of US89¢ as the US dollar and the euro both attracted safe-haven demand amid the wholesale retreat from emerging markets.
“(The dollar) continues to trade poorly, even though Chinese economic data and iron ore prices have strengthened over recent months,” Royal Bank of Scotland currency strategist Greg Gibbs said. “Clearly global risk aversion led by emerging markets and geopolitical risks in the Middle-East are factors.”
The softer domestic yield outlook was confirmed by the third consecutive quarter of declining domestic construction activity which raised the prospect of another rate cut this year.
“This lends support to our view that the transition from mining investment led growth to strength across the broader economy is unlikely to be smooth,” Westpac economist Andrew Hanlan said.
The Shanghai composite index bucked the weaker regional trend and was up 0.3 per cent at the close of the ASX after the Chinese government eased restrictions on foreign investors.
In Tokyo the Nikkei index fell 1.5 per cent.
Gold jumped $US27 to a fresh three-month high of $US1429 an ounce, while copper edged up 0.2 per cent. Spot iron ore was flat at $US138.70 a tonne.
The broader All Ordinaries index was down 52.8 points, or 1.03 per cent, at 5,078.On the ASX 24, the September share price index futures contract was 56 points lower at 5,066, with 24,675 contracts traded.
CommSec market analyst Steven Daghlian said the uncertainty battered risk sentiment in the US and Europe, sparking a one per cent fall on the local market.
"The last time we saw this sort of margin was the 7th of August,” he said.
"The biggest driver at the moment: tensions in Syria; the potential for a US-led military strike is not doing much for equity markets globally.
"Generally speaking, when there are concerns about what is taking place offshore, if there are concerns surrounding growth or uncertainty, it tends to see the mining sector not doing well."
BHP Billiton shed 80 cents to $34.80, Rio Tinto was down $1.58 at $58.16, and Fortescue Metals lost 19 cents to $4.31.
But Australia’s biggest gold miner Newcrest finished flat at $13.74 as the geopolitical tensions pushed up gold prices to a 12-week high.
AGL Energy gained 71 cents, or 4.94 per cent, to $15.08 after its full year net profit more than tripled to $388.7 million despite higher one-off costs.
Among the big four banks, ANZ was down 24 cents at $29.64, Commonwealth Bank shed $1.22 to $72.25, National Australia Bank was 34 cents lower at $32.32 and Westpac lost 50 cents to $31.11.
In the supermarket space, Woolworths had gained 68 cents to $34.59 after reporting a six per cent rise in full year net profit to $2.35 billion.
But smaller grocery wholesaler Metcash shed 20 cents, or 5.8 per cent, to $3.25 after chief executive Ian Morrice told shareholders price competition between Coles and Woolworths was hurting independent players.National turnover was 1.7 billion securities worth $4.4 billion.