A CRISIS of confidence in Europe and at home has brought about the biggest collapse in the Australian sharemarket since the onset of the financial crisis and sent the Australian dollar plunging below US85¢.
In 24 hours of trade that dealers described as ''fairly crazy'', the Australian dollar slid from US88¢ to US85¢, well below the US90¢ and more that has held firm for most of the year. At 8.30pm Wednesday, the Australian dollar was trading at US84.12¢
The Australian sharemarket lost $24 billion as the index fell two per cent on top of Tuesday's 3pc to a nine-month low after Wall Street slid following a German move to stop traders speculating on European governments going broke.
The S&P/ASX 200 Index closed at 4387.1.
Announced after the close of trade in Europe, a new regulation bans so-called naked short-selling in which traders bet on a stock or investment that they do not own or, in this instance, bet on an entire country being unable to pay its debt.
But rather than instilling confidence, the ban sent the euro plummeting to a four-year low against the US dollar, dragging down other currencies, including the yen.
''The restrictions send another shockwave across markets as investors are once again left asking questions over the resilience of Europe,'' said IG Markets research analyst Ben Potter.
Mining, retail and banking shares fell the most here after Fortescue Metals told the sharemarket it was putting projects worth $17 billion on hold.
The Western Hub and the Chichester Hub in Western Australia's Pilbra between them were to employ 30,000 people.
Electronics retailer Clive Peeters was placed in voluntary administration and retailer David Jones said it expected conditions to remain ''challenging''.
The Westpac-Melbourne Institute measure of consumer confidence slumped 7 per cent in its biggest fall since the height of the global financial crisis.
''There is no question that Aussie consumers started 2010 in fine spirits,'' said Commsec economist Savanth Sebastian. ''But the cumulative rate hikes are eroding optimism. Three hikes in a row, together with the government's response to the Henry review, a weaker sharemarket and fall in the Aussie dollar have taken their toll.''
Westpac economist Bill Evans said: ''We are now confident the Reserve Bank will remain on hold next month. Its board now believes rates have returned to normal levels. Rates are now starting to bite. Retail spending, housing finance and even employment growth are slowing. The news from offshore is disturbing.''
In a separate Melbourne Institute survey, shareholder confidence fell 10pc.
''The message is coming through loud and clear that share investors are concerned about issues such as the turmoil on European sovereign debt markets, the slower-than-expected turnaround in the global economy and the mining super tax,'' said the institute's Guay Lim.
Asked specifically about their support of the government's new mining super tax, most investors were against it.
While 28pc said they either supported it or would if it was imposed at a lower rate, 55pc opposed it.
A Dunn and Bradstreet survey found that close to 80,000 Australian businesses had had their risk profile downgraded in the first three months of the year and were likely to find it harder to raise money.
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