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The Australian stock market closed in the red for the tenth session in a row, the first time for more than 15 years, as nervous investors retreated to the sidelines, but falls were pared by a late surge from the banks.
The gloom followed more falls on Wall Street overnight and investor uncertainty over a possible global economic meltdown.
Resources stocks were hit hard after gold and base metals prices dipped overnight, while oil dropped to its lowest level in a month.
Locally, a late session rally pared back losses on the benchmark indices from more than three per cent in morning trade.
At the 1615 AEDT close, The S&P/ASX200 index had fallen 48.8 points, or 0.84 per cent, to 5,747.3 while the broader All Ordinaries shed 57.6 points, or 0.98 per cent, to 5799.4.
On the Sydney Futures Exchange at 1625 AEDT, the March share price index contract had dropped 29 points or 0.5 per cent to 5763 on a volume of 36,599 contracts.
The material and energy sectors weighed heaviest on the market amid concern that a US recession will dampen demand for base metals.
Notably, BHP Billiton fell heavily but rival Rio Tinto lifted signficantly.
Analysts said rumours were spreading that BHP will make an official and higher bid for Rio Tinto as early as next week.
BHP closed $1.70 or 4.66 per cent lower to $34.80 while Rio Tinto was up $5.40 or 4.55 per cent to $124.00.
MF Global's Richard Avery-Wright said an improved BHP offer for Rio made sense.
"In some ways, the market falling strengthens BHP's case because they're highly cash generative in terms of their annual profit and losses," Mr Avery Wright said.
He said the US downturn would not impact BHP greatly, given its main customers, particularly for iron ore, were China and India.
The volatility of the market today was astounding, he added.
"I wouldn't quite call it panic selling but investors have been shorting shares for weeks now."
Back home, shares in funds manager MFS Ltd took a hammering - dipping 75 per cent in intraday trade - after the funds manager said it would split its financial services and Stella tourism businesses into two separately listed companies and raise capital, partly to reduce its debt.
MFS shares closed down $2.19, or 68.87 per cent, to 99 cents.
Mr Avery-Wright said it was ironic that MFS had stolen the headlines, as the biggest market casualty of the day, from Centro.
"There seems to be a lot of margin calls going off in MFS stock, even down to the directors.
"The further they fall, the more selling it attracts."
In the US overnight, the Dow Jones industrial average fell 276.47 points, or 2.22 per cent, to 12,189.69 after Merrill Lynch reported a quarterly loss of nearly US$10 billion and data showed a plunge in regional factory activity.
A degree of optimism returned to the finance sector today, with some traders speculating Australian banks will not be hit as hard by the credit crunch as their overseas counterparts.
ANZ closed 73 cents, or 2.79 per cent, higher at $26.93, NAB was 89 cents, or 2.52 per cent higher, at $36.26, Commonwealth Bank gained $1.67, or 3.24 per cent, to $53.20 and Westpac added 86 cents, or 3.35 per cent, to $26.55.
The price of gold in Sydney was US$874.20 per fine ounce, down US$6.30 from yesterday's close of US$880.50 per fine ounce.
Gold stocks were accordingly weaker. Lihir Gold dropped 17 cents, or 4.57 per cent, to $3.55, Newmont Mining had lost eight cents to $6.01 and Newcrest Mining shed $2.68 cents, or 7.2 per cent, to $34.53.
Energy stocks were also weaker. Woodside slid $1.32 to $47.56, Santos dropped 36 cents to $13.17 and Oil Search shed eight cents to $4.50.
Shares in Macquarie Airports fell eight cents to $3.76, despite the firm reporting solid passenger traffic at its airports in December and a nine per cent lift in pre-tax earnings at Sydney Airport.
Zinifex's takeover bid for Allegiance Mining NL is likely to be revised, the target indicated today.
Zinifex shares closed 40 cents, or 4.03 per cent, lower at $9.52 while shares in Allegiance closed half a cent higher at $1.06.
Media stocks were off considerably with Rupert Murdoch's News Corp down 65 cents, or 2.81 per cent, to $22.50 and the company's non-voting scrip falling 50 cents, or 2.25 per cent, to $21.71.
Fairfax shed six cents, or 1.39 per cent, to $4.25 and Consolidated Media reversed four cents to $3.86.
Coles owner Wesfarmers lost $1.28, or 3.47 per cent, to $35.61, Woolworths dropped 65 cents to $30.75 and Harvey Norman shed two cents to $6.02.
The most heavily traded stock was MFS, with a total of 115.69 million shares changing hands at a value of $148.46 million.
Preliminary market turnover was 1.118 billion shares with a total value of $7.66 billion, with 277 stocks up, 1,108 down and 299 unchanged.
- AAP