Reacting to a steep fall on Wall Street, nervous Australian investors yesterday wiped almost $29 billion from the value of the nation's biggest companies, pushing the main index below 5000 points for the first time since September 2006.

Mining giants BHP and Rio, which have soared on the back of Chinese demand for their coal and iron ore, were among the hardest hit yesterday as the market closed more than 25pc below the all-time peak reached in the second half of 2007.

Commsec chief economist, Craig James, said persistent growth in share prices was no longer inevitable.

"We're in a bear market, and investors who have had their starts over the last couple of years have never seen anything like this," he said.

The latest turmoil, fuelled by a surge in the oil price to a new record above $US145 a barrel, comes at a critical time for Australia as Professor Ross Garnaut today releases his final draft report on climate change - a report that will propose measures likely to add to pressures and strains on the economy.

A prominent analyst warned last night that a recession could make it more difficult to conduct an effective climate change strategy.

"On the face of it a recession would result in an easier climate change task because people will be using less oil," said Alan Moran, director of deregulation at the Institute of Public Affairs.

"But if the economy starts moving down you are in a more difficult situation to take decisions which are going to impose costs … it's easier to do something which is disruptive … if it's a buoyant economy."

Prime Minister Kevin Rudd said last night the Government was committed to a broad emissions trading scheme, while reaffirming that compensation would be given to ease the pain.

"We will provide support to families during the adjustment period … we will provide support to industry during the adjustment period," he said.

Professor Garnaut said last night that Australians would be hurt more than people in other developed countries if there was no early effective action on climate change.

"We have to play our full part in the global effort. We can greatly reduce the risks at reasonable cost if we do it right," he said.

In a further sign that the economy is slowing, one of the nation's leading mortgage brokers, AFG, warned yesterday of a marked downturn in demand for home-loan packages.

The company said the number of mortgages it signed in June was 9.2pc lower than May, and 22pc lower than a year ago.