SHARES fell for a fourth day and the dollar slumped as investors worried that the Australian economy was entering a recession. Official data released today showed the Australian economy unexpectedly shrank in the December quarter. The benchmark S&P/ASX 200 sank to its lowest level since August 12, 2003, and the Australian dollar lost 1.4 per cent after gross domestic product contracted by 0.5 per cent in the fourth quarter, compared with expectations for an increase of 0.2 per cent. Shares bounced off their intraday lows in the afternoon, but remained in the red, after Chinese manufacturing activity rose in February for the third consecutive month, adding to suggestions that Australia’s biggest trading partner and the world’s third-largest economy was turning the corner and strengthening. The local sharemarket was also helped by growing expectations that Chinese Premier Wen Jiabao will announce a new stimulus package at the annual meeting of the National People’s Congress, which starts in Beijing tomorrow. After a negative lead from Wall Street, the benchmark index closed down 52.8 points, or 1.6 per cent, to 3166.4, after hitting a five-and-a-half year low of 3142.5 in intraday trade. The All Ordinaries closed lower by 45.5 points to 3125.9 . The Australian dollar fell to US62.87 cents after the GDP figures were released at 1130 AEDT. The local unit was last trading near US63.28c after yesterday’s close at US64.08c. ABN Amro sales trader James Trude said investors were disappointed with the GDP figures, which showed that households had saved most of the Rudd Government’s cash handout in December and the interest-rate cuts. Asian markets were mostly higher after the positive Chinese manufacturing data. Japan’s Nikkei 225 was up 1 per cent and Hong Kong’s Hang Seng was higher by 0.7 per cent. Murchison Metals registered the biggest gain in the weakened market, soaring 14.9 per cent to 65.5c after Sinosteel, China’s second largest iron ore trader, lifted its stake in the company to 5.85 per cent. Several Chinese companies are circling the Australian mining sector, seeking to get a bigger stake to secure future supply of key commodities. State-owned Chinalco and Rio Tinto are trying to convince the Rudd Government and investors to support their $30 billion deal, which would see the Chinese company take an 18 per cent stake in Rio. China Minmetals recently launched a $2.6 billion takeover bid for debt-laden Oz Minerals, which looks more likely to proceed after Oz was granted a four-week extension to repay debt. Arrow Energy rose 4.1 per cent to $2.53 on speculation it will abandon its bid for Pure Energy Resources, even as Woodside Petroleum lost 1.5 per cent and Santos shed 1.8 per cent. BHP Billiton fell 0.7 per cent to $27.11 while Rio was down 1.3 per cent to $43.47. The Big Four banks were weaker, with Commonwealth Bank down 3.6 per cent to $27.27, Westpac dropped 2.3 per cent to $15.70, ANZ slipped 3.5 per cent to $12.45 and National Australia Bank eased 0.7 per cent to $17.20.

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