Interpac Business and Migration Solutions Melbourne Australia

(September 23, 2011)

Like dominos: The local market dipped after US and European fears of recession. Photo: Frances Mocnik

ESCALATING fears of a double-dip recession in much of the developed world have dragged the sharemarket to a fresh two-year low, and caused the Australian dollar to tumble below parity with the greenback.

A wave of panic yesterday gripped investors after the US Federal Reserve underlined the dire state of the world's biggest economy as it unveiled further attempts to revive growth.

The benchmark S&P/ASX 200 Index slumped below the psychological barrier of 4000, plunging 2.6 per cent to 3964.9, while the dollar briefly slipped below $US1 during a turbulent trading session. At the close it was fetching $US1.0018. At 8pm it had fallen to US98.6¢.

The global selloff, which had intensified in early European trade, erupted after the US Fed adopted a more negative tone, warning of ''significant downside risks to the economic outlook, including strains in global financial markets''.

In a bid to kick-start its economy, the Fed also said it would buy $US400 billion of long-dated US Treasury bonds, which it hoped would keep interest rates low. But analysts said it was not enough to provide the ''circuit-breaker'' needed to revive confidence on global markets.

This concoction of fears, building on warnings of recession in the US and Europe this week from the International Monetary Fund, prompted investors to ditch assets seen as risky, such as shares and the Australian dollar.

''We've broken the 4000-level now,'' said Jamie Elgar, senior dealer at Brisbane-based Burrell Stockbroking. ''It looks like the market is getting worried about further downside risk. The market is looking for more bad news to come out, particularly from Europe.''

The dollar dipped under parity with the greenback for the first time since August 9, as investors weighed dire scenarios from the global economy in which broke governments struggled to stimulate growth and concerns about a default of Greece's debt mounted.

The ASX 200's fall came after weak manufacturing data was released from China. The HSBC Flash China Manufacturing index fell to 49.4 in September, from 49.9 in August. HSBC co-head of Asian economic research Qu Hongbin said the result ''implies that China's manufacturing sector will see weakening sequential growth in the coming months''.

Arab Bank Australia treasury dealer David Scutt said: ''China is clearly slowing, the troubles in the US and Europe are as pronounced as ever and … global growth prospects are getting increasingly pessimistic by the day.''

NAB head of currency John Kyriakopoulos said the overnight market reaction showed that, in addition to fears for the US economy, there was a growing concern that the Asian economies might slow faster than expected. ''Those fears have escalated. If there is a perception that Asia could slow sharply that would be seen to be negative for the Aussie dollar,'' he said.

The depressed reading on China's growth compounded worries by investors about the US economy, where the the Fed reviewed its latest stimulus program in which it would sell $400 billion of shorter-term securities to fund the purchase of longer-term bonds.

Source from Theage.com.au