Stocks take biggest hit since 9/11

http://www.smh.com.au/news/business/...964535789.html

Matt O'Sullivan
June 14, 2006

CONTINUED worries about US inflation sent shockwaves through the local sharemarket as stocks had their biggest one-day fall in almost five years.

Investors rushed for the sell buttons for the second trading day in three after Wall Street fell to a four-month low after another inflation warning from a Federal Reserve official.

Resource companies and banks led the slide as the market slumped almost 2.6 per cent - worse than last Thursday's rout - the biggest single-day fall since the aftermath of the terrorist attacks on September 11, 2001.

Analysts warn that the market will remain volatile until the Fed clarifies the direction of interest rates in the US.

Since reaching a record on May 11, the local market has fallen almost 10 per cent.

Few companies were spared from the sell-off yesterday as falls in metal prices compounded investors' woes.

The ASX 200 index slumped 127.1 points, or 2.56 per cent, to 4838.9 and the broader All Ordinaries dropped 119.6 points to 4807.2.

ABN Amro's head of Sydney sales trading, Justin Gallagher, said the sell-off was primarily due to continued concerns in the US about inflation.

"There is an element of emotion that has definitely crept into the market and that has added to the magnitude of the fall," he said. "[But] investors haven't completely turned their backs on this market."

BHP slumped $1.48, or more than 5.5 per cent, to $25.25 and Rio Tinto fell $2.87 to $70.90.

The two miners have fallen more than 21 per cent and 19 per cent respectively since reaching record highs in early May.

Some Asian markets fared worse as they reacted to concerns about inflation and central banks' attempts to combat it by raising interest rates. Japan's Nikkei fell more than 4 per cent and Hong Kong's Hang Seng 2.5 per cent.

The rout continued last night in Europe as Britain's FTSE shed about 1.6 per cent and Germany's DAX about 1.7 per cent in early trading.

Shaw Stockbroking's head dealer, Jamie Spiteri, said the Australian indices had become more susceptible to overseas markets than several months ago when they could often repel negative leads because of the performance of resource companies.

"You've got a situation where the [bullish] sentiment that was very evident in the market a couple of months ago has now largely evaporated," he said.

"We now have a market that is extremely sensitive to overseas leads, particularly from the US."

Wallace Funds Management's portfolio manager, Michael Birch, said the "shake-up" was likely to continue for the next two weeks until the Fed clarified the direction of US interest rates.