LOCAL shares were caught up in a global sell-off this week as economic conditions deteriorated, and closed down 1.4 per cent today. The market spent most of the five trading days in the red after several indicators showed Australia was on the brink of recession, while hopes evaporated for a second stimulus package in China, Australia’s biggest trading partner. Investors were unnerved by a contraction in fourth-quarter gross domestic product, sharp falls in imports and exports and an unexpected decline in building approvals, which pointed to weak consumer and business spending. The S&P/ASX 200 dropped 43 points to 3145.5, for a weekly loss of 6 per cent. It was the lowest close since August 12, 2003. The benchmark index, which is in the grips of one of the worst bear markets in history, has fallen 15.5 per cent this year and is 54 per cent below its November 2007 peak of 6851.5. It traded within a whisker of a six-year low today after US markets hit a 12-year low overnight. The All Ordinaries fell 37.1 points to 3111.7, taking losses over the week to 5.6 per cent. Intersuisse head of Australian equities Andrew Sekely said: “It’s been a bad week. The bad news is not easing up in any way, shape or form.” The Australian dollar was slightly higher against the US dollar and the British pound over the week after the Reserve Bank of Australia left interest rates unchanged at 3.25 per cent. Economists expect rates to reach 2 per cent later this year, which is still considerably higher than in other industrialised countries. ANZ senior analysts Warren Hogan and Tony Morriss said in a report: “The economy looks like it is in recession and the worst of the fall-out from the international financial crisis is still to come. “We expect the RBA will respond with another 50 basis points of rate-cuts by mid year. This may come in the form of single 25 basis-point moves in April and May. “There is however, a tangible risk of a 50 basis-point cut in April if the situation deteriorates further over the month ahead.” Investors bailed out of miners, banks, insurers and Telstra today, ahead of US unemployment data that is expected to show more than half a million Americans lost their jobs last month. The US jobless figures are also forecast to trigger big falls on Wall Street. In Australia, BHP Billiton fell 2.3 per cent to $27.65. Telstra dived 3.9 per cent to $3.21 after going ex-dividend. Most of the big banks were in the red. Insurers were belted, with AMP diving 9.5 per cent to $3.83 after going ex-dividend and IAG dropping 4.7 per cent to $3.22. Strong support for Lihir Gold and energy producers helped contain the losses. AMP Capital Investors chief economist Shane Oliver said the outlook for equity markets would remain “very messy” as the tide of bad economic news continued. “From a technical perspective, the fall below the 740-level for the S&P 500 index (in the US) has opened up the possibility of a further fall to around 640 to 670. This would translate to just below 3000 for the Australian share market,” said Dr Oliver. “Against this, investor sentiment has fallen to extreme low levels, which is positive from a contrarian perspective, and the selling seems less manic compared to that seen last October and November, with less stocks making new lows - both of which suggest we may be getting closer to at least seeing a meaningful rally in shares, particularly if the flow of news becomes a bit less bad.”

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