Undeterred by a looming austere Federal Budget, the Australian sharemarket opened at a fresh six-year high but slumped back deep into the red as weak iron ore prices and Chinese growth uncertainty sent investors scurrying for the sidelines.
The S&P/ASX200 index opened 0.3 per cent up following a volatile winning session on Wall Street last night but an early drop in iron ore futures sparked a dash for the exit and it dropped to close 49.5 points, or 0.89 per cent, down at 5486.6.
The move on volume 27 per cent above average decisively set up a bearish “key day reversal” signal after the index reached the six-year high and finished below yesterday’s trading low.
Chinese jitters were again reflected in a fresh 19-month low in the yuan despite a slightly firmer trading range mid-point fix by the People’s Bank of China.
The PBOC also kept the Chinese banking system on a tight leash as it withdrew 50 billion yuan ($8.9 billion) of about 141 billion yuan of maturing repo deals despite month end liquidity pressure.
Dalian iron ore futures followed up yesterday’s 3.5 per cent drop with a one per cent opening fall today but were per cent at the close of the ASX on reports Chinese banks would demand higher margin deposits for commodity linked financing deals.
Yesterday spot iron ore fell 2.2 per cent to $US08 a tonne.
The Shanghai composite index was off 0.2 per cent at the close of the ASX and was testing the psychological 200 point level.
Japanese markets were closed for a public holiday.
Reversing a late rally yesterday the Australian dollar dropped US0.5¢ to US92.40¢ after firmer US data lent some support to the US dollar ahead of the US Federal Reserve board meeting tonight.
The Fed is expected to trim its bond purchasing program by $US10 billion to $US45 billion.
Australian government 10-year yields were little changed at 3.925 per cent despite a 3 point jump in US treasury yields to 2.69 per cent.
Gold slipped $US9 to $US1295.
CMC chief market analyst Ric Spooner said investors thought it was time to sell after the market’s recent strong run, with stocks appearing fully valued.
“It’s one of those sessions where selling builds on itself,” Mr Spooner said.
The mining sector was under pressure from a decline in iron ore prices and news that 30 out of 31 provinces in China had missed their economic growth targets, Mr Spooner said.
BHP Billiton dropped 26 cents to $37.61, Rio Tinto shed 76 cents to $61.30 and Fortescue Metals was 12 cents lower at $5.00.
Among the major banks, Commonwealth Bank hit a record high of $79.95 in early trade but closed 51 cents weaker at $78.94.
ANZ retreated 34 cents to $34.60, Westpac lost 47 cents to $35.39 and National Australia Bank dropped 48 cents to $35.51.
Elsewhere, Oil Search picked up nine cents to $8.89 and Santos gained three cents to $13.55 on news gas production had started early at the companies’ Papua New Guinea joint venture with Exxon Mobil.
Wesfarmers lost 88 cents to $43.01 after its third quarter sales figures fell short of market expectations.
Roc Oil shares slipped 0.5 cents to 45 cents and Horizon Oil dipped 1.5 cents to 35.5 cents as the two oil and gas players struck an $800 million deal to merge their Asia-focused assets and produce up to 20,000 barrels of oil per day.
Mr Spooner said trade in the rest of the week would be influenced by overseas economic developments, including a conclusion of the US Federal Reserve’s policy meeting tomorrow night, April manufacturing data for China on Thursday and monthly US jobs figures on Friday.
The broader All Ordinaries index was down 49.2 points, or 0.89 per cent, at 5466.9 points.
On the ASX 24 at 2.25pm, the June share price index futures contract was down 59 points at 5474 points, with 35,473 contracts traded.
National turnover was 1.45 billion securities worth $4.78 billion.