Bullish sentiment buckled on the Australian sharemarket and it fell the most in three months, erasing $20 billion in shareholder value, after US stocks were dumped on overvaluation fears and an uncertain outlook ahead of the start of the earnings season.
Following the 1.2 per cent loss on the US S&P 500 last night the S&P/ASX 200 index fell 80 points, or 1.51 per cent, to 5212 on heavy volume as investors finally took note of warnings that growth fundamentals did not match bubbling valuations supported by US Federal Reserve liquidity.
US stocks were slightly lower in early trade but selling accelerated after Fed president Dennis Lockhart said that weak payroll growth last month shouldn’t discourage policy makers from reducing monthly bond purchases as long as the economy continues to gain strength.
Sentiment was on the back-foot after Goldman Sachs analysts downgraded US stocks and said they saw the risk of a 10 per cent correction.
The Australian dollar was little changed at US90.35¢, but government 10-year yields dropped 3.7 points to 4.192 points as equity market jitters drove demand for safe-havens. US 10-years lost 4 points to 2.84 per cent.
The Shanghai composite index was down 0.4 per cent just above the psychological 2000 point level but bottom pickers ramped the index higher to trade 0.6 per cent up at the close of the ASX.
In an early sign of another growth sapping cash crunch this month, Chinese three and four-day repo rates leapt over 3 percentage points to 7.3 per cent as the scramble for liquidity intensified ahead of the Lunar New Year holiday.
Keeping a lid on the shadow banking sector, the People’s Bank of China has not offered liquidity to the market since December 24.
In Tokyo the Nikkei index tumbled 2.6 per cent as the yen rallied and Japan reported a record current account deficit in November as soaring energy imports on the weaker yen swamped export revenue.
Gold was slightly higher at $US1251 an ounce, copper rose 0.3 per cent to $US7320 a tonne and spot iron ore firmed 0.1 per cent to $US130.90 a tonne.
OptionsXpress market analyst Ben Le Brun said several factors had spooked investors: a disappointing US jobs report last Friday, uncertainty about upcoming company earnings reports in the US, and the comments from Dennis Lockhart.
Furthermore, another profit downgrade from Australian engineering and mining services firm Forge had raised concerns that there may be some other skeletons in the closet ahead of Australia’s company earnings season, which kicks off in earnest in February.
"It was a horror day on the ASX,” Mr Le Brun said.
He said all sectors of the market had suffered losses.
Among the big banks, Commonwealth Bank fell $1.20 to $75.80, ANZ dropped 54 cents at $30.79, Westpac retreated 50 cents to $31.51, and National Australia Bank sagged 67 cents to $33.57.
In the resources sector, global miner BHP Billiton was off 42 cents at $36.14, and Rio Tinto dumped 16 cents at $63.35.
Gold miner Regis Resources fell 17 cents, or 5.54 per cent, to $2.90 after the company missed its quarterly production targets and flagged lower recovery rates at its Garden Well operation.
Mining, engineering and construction company Forge Group plummeted 22.5 cents, or 18 per cent, to $1.025 after it announced a $28 million profit downgrade.
The broader All Ordinaries index was down 77 points, or 1.45 per cent, at 5219.8 points.
The March share price index futures contract was 86 points lower at 5175 points, with 31,872 contracts traded.
National turnover was 1.38 billion securities worth $3.59 billion.