The Australian sharemarket pared its recovery bounce after the US Federal Reserve announced another cut to its bond purchasing program and investors shrugged off Turkey’s panic attempt to shore up its currency.
The S&P/ASX 200 index dropped 40.9 points, or 0.78 per cent, to 5188.1 but finished off the day’s lows despite China compounding global woes with a drop in its manufacturing index into the contraction zone.
Sentiment soured last night just 12 hours after Turkey hiked rates sharply to ward off currency speculators.
The Turkish lira reversed a 4 per cent gain to hit a fresh low against the US dollar, while the South African Reserve Bank also surprised markets with a 0.5 percentage point hike in its cash rate to 5.5 per cent, but the news did little to support the ailing rand.
In the US weak earnings reports kept investors on the back foot until the Fed later tapered its bond purchasing program by another $US10 billion to $US65 billion a month, a level few economists contemplated in early December, sending the S&P 500 index one per cent lower.
The HSBC China PMI manufacturing index fell one point to 49.5 as both output and new business fell and firms cutting staffing levels at the fastest pace since March 2009.
The Shanghai composite index was off 0.5 per cent at the close of the ASX.
In Tokyo the Nikkei index parted a 3.3 per cent loss to trade 2.8 per cent down as the yen strengthened on safe have demand and the reversal of carry trades.
The Australian dollar fell 0.7¢ to US87.30¢ as the US dollar rallied against most currencies except the euro and the yen.
Ignoring the Fed’s taper, Australian government 10-year yields dropped 10.8 points to 4.008 per cent as investors scrambled for the safety of government bonds. US 10-years dropped 9 points to 2.69 per cent.
In Europe, where the Hungarian forint bore the brunt of negative emerging market sentiment with a 2.5 per cent fall, the European Central Bank reported that broad M3 money supply in the eurozone rose just 1.1 per cent year-on-year in December compared to 1.5 per cent in November and 3.5 per cent a year ago.
“Weakness in monetary aggregates and credit growth is a major concern for the ECB,” ANZ strategist Brian Martin said.
Gold rose $US9 to $US1262 an ounce, copper was steady at $US7120 a tone and yesterday spot iron ore fell 1.5 per cent to $US122.60 a tonne.
"There’s a bit of negative sentiment all around the world,” Lonsec senior client adviser Michael Heffernan said.
"When you get all major markets going down, we’re just going to follow - it’s the infectiousness of share markets."
The biggest slider on the local market was Treasury Wine Estates.
It dropped 91 cents, or 20 per cent, to $3.64 after it downgraded its profit forecasts due to weaker sales in Australia and China.
The major banks also fell, with Commonwealth Bank down 72 cents to $74.20, National Australia Bank down 33 cents to $33.27, Westpac down 31 cents to $30.89 and ANZ 32 cents weaker at $30.05.
In the resources sector, BHP Billiton shed 18 cents to $36.69 and Rio Tinto was steady at $65.80.
Fortescue Metals Group lost seven cents to $5.23 after it said bad weather during January would reduce the amount of iron ore it ships this financial year.
Explosives, mining services and chemicals supplier Orica climbed 17 cents to $23.45 as it said it was reviewing the future of its non-mining chemicals business.
The broader All Ordinaries index was down 41.2 points, or 0.79 per cent, at 5199.4 points.
The March share price index futures contract was 37 points lower at 5137 points, with 29,177 contracts traded.
National turnover was 1.46 billion securities worth $4.33 billion.