Shares End Down 2.3%; Hits 5-Month Low

The Australian share market dived to a 5-month low on heavy trading volume Friday after offshore equities and commodities markets fell on heightened concern about sovereign debt in Greece, Spain and Portugal, and U.S. unemployment claims unexpectedly rose to their highest level since mid-December. The benchmark S&P/ASX 200 index closed down 107.5 points, or 2.3%, at 4514.1, after falling to 4488.4. It was the biggest closing percentage fall in the index since Nov. 27.

Overnight, the S&P 500 fell 3.0%, London Metals Exchange copper fell 3.2%, spot gold fell 4.0% and Nymex crude oil futures fell 5.0% as worries about sovereign debt and the U.S. economy triggered risk aversion and a flight to U.S. dollars. The Australian dollar fell 2.1% to US$0.8643 in offshore trading, before bouncing to US$0.8668. Traders feared a further unwinding of the U.S. dollar carry trades--U.S. dollar funded investments in offshore assets--that boosted the Australian share market last year.

"The concerns are global, with sovereign debt issues in Greece, Spain and Portugal affecting investor sentiment," said Macquarie Private Wealth associate director Marcus Droga. "That's putting some pressure on U.S. dollar carry trades. Any deterioration in the U.S. jobs data would not be taken well tonight." Materials, financials and energy stocks lead broad-based declines, with BHP Billiton down 3.5% to A$39.55, ANZ Bank down 2.4% to A$20.90 and Woodside Petroleum down 3.9% to A$41.52.