$32bn Wiped From Sharemarket

THE Australian sharemarket continues to fall, with $32 billion wiped from its value in a single days trade as the end of the financial year looms.

In the biggest one-day fall in more than three months, the S&P/ASX 200 Index dropped nearly 2 per cent, or 124.4 points, to 6184.2, topping off a five-day negative run that has erased a total of $54.4 billion in market capitalisation.

Last time the market experienced a similar decline was in late February-early March when a dramatic fall on the Chinese sharemarket prompted a 2.7 per cent one-day skid.

Grange Securities research director Stephen Roberts said the market "pullback" came courtesy of a combination of further worries over the low-end subprime mortgage market in the US, lower commodity prices and end of financial year stock shuffles.

He said some traders and fund managers would be "window dressing" before July 1 by searching out last-minute profits and others eliminating any 2006-07 losses to manage tax liabilities.

Tolhurst strategist and economist Tony Farnham said the experience of US investment bank Bear Stearns had re-ignited worries over subprime mortgage defaults.

Bear Stearns commissioned top mortgage trader Thomas Marano to oversee the bail-out of an unstable mortgage-exposed hedge fund, the High-Grade Structured Credit Fund.

Originally, up to $US3.2 billion ($A3.8 billion) was to be provided but, after the sale of additional assets, Bear Stearns will provide about $US1.6 billion. It will not finance another hedge fund with about $US1.2 billion in outstanding repurchase agreements.

"Investors are worried the subprime misadventure that Bear Stearns has been through is going to be replicated in other investment banks in the US," Mr Farnham said.

"Its possible that theres more than one fund out there that has taken on all these collateralised debt obligations."

Bear Stearns shares have fallen 4.5 per cent in the past three trading days, while US-based Goldman Sachs Group has lost 5.7 per cent.

Mr Farnham said that about 14 per cent of subprime mortgages were estimated to be delinquent.

Not deterred, Australian home loans company RAMS has announced a $695.3 million initial public offering after a planned auction fell through.

It will list on the Australian Securities Exchange on July 27.

Among S&P/ASX 200 Index companies, Fortescue Metals fell the most, dropping $3 a share, or 8.5 per cent, to $32.40.

Construction costs at the companys Pilbara iron ore project have risen by $99 million, on top of a $106 million cost overrun flagged two months ago.

The company has fallen by 13.8 per cent so far this week. But, even so, it has offered a 239.3 per cent return to shareholders this financial year, making the S&P/ASX 200 Index look static in comparison (see the graph, BusinessDay 2).

National Australia Bank lost a further 86¢ to $40.15, having fallen from a high of $44.70 in recent weeks. Valad Property Group, Arrow Energy, Asciano Group, Monadelphous Group and Oxiana were also near the top of the laggers column.

And of the 201 companies included in the index, 177 fell, only 15 gained and nine were steady.

In a separate development, Standard & Poors has announced the launch of an Asian index — the S&P Pan Shariah Index — specifically for Islamic investors. The new index complies with Islamic law.

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