Prime Minster Kevin Rudd is reassuring Australians the country is uniquely placed to weather any continuing economic turbulence after panic selling on world stock-markets sparked fresh fears of a resurgence of the global financial crisis.
After opening 3per cent lower, Australia's benchmark S&P/ASX200 index closed down 2per cent yesterday. The Australian dollar also lost almost 2c in the day's trading, finishing at $US88.25c.
The fall came after the Dow Jones Industrial Average suffered fell almost 1000 points in a matter of minutes. It recovered 400 points to close almost 4per cent down.
The intra-day fall eclipsed even the crashes seen when markets reopened after September 11, 2001, and in the wake of the Lehman Brothers collapse.
United States authorities have launched an investigation into the collapse, which was reportedly caused by a so-called ''fat-finger'' trade when someone accidentally sold 16billion rather than 16million Proctor and Gamble shares.
Investors were also spooked after ratings agency Moody's said there was a risk the Greek financial crisis presented a risk of contagion for the credit ratings of banks in Britain, Ireland, Italy, Portugal and Spain.
The International Monetary Fund has agreed to partner with European Union nations to provide Greece with 110billion euros ($A158billion) in loans over three years to stave off the nation's financial collapse.
The deal was dependent on unprecedented package of spending cuts and tax hikes, which passed the Greek Parliament despite more than 10,000 people some of whom clashed with police protesting against it.
Royal Bank of Scotland economist Keiran Davies said the crisis could affect Australia through indirect channels.
''For example, weaker European demand would affect Asia, which is our biggest trading partner, while lower confidence, lower asset prices, increased illiquidity, etc, could spill over to Australia,'' he said.
''At this stage, however, we are assuming that European policy-makers, including the [European Central Bank], eventually calm the market. In the short term, this means the Reserve Bank will pause and we do not expect hikes to resume until August.''
International Monetary Fund first deputy managing director John Lipsky and senior Treasury officials briefed Mr Rudd yesterday on the developments and how authorities were dealing with them.
Mr Rudd said the panic was a ''sudden reminder of the fragility of the global economy recovery'' and showed why Australia should not prematurely end its stimulus measures.
''I've said this repeatedly in recent months and I say it again: we are not out of the woods yet. We've therefore got to follow these developments with great, great care, caution and concern,'' he said.
However, Australia whose net debt was expected to peak at less than 9.6per cent of GDP compared with some other advanced nation's with levels of more than 100per cent was well placed to weather any further financial instability.
For more on this story, see the print edition of today's Canberra Times.
Source: The Canberra Times
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