Australian Share market plunges on economy fears

Local stocks are declining for a record 12th day in a row, but today's drop is severe, with the market down 4.9 per cent.

Shortly before midday AEDT the All Ordinaries Index had lost 276 points to 5,355.

The ASX 200 dropped 254 points to 5,330.

The National Australia Bank fell 4.6 per cent to $33.57.

Rio Tinto slumped 8.7 per cent to $104.35.

James Packer's Consolidated Media Holdings was one of the rare performers, up by 7 per cent.

The Australian dollar was buying 85.6 US cents.

'Forced selling'

Senior economist with NAB Capital, David de Garis, says the sharp falls on European and Asian markets overnight may have been sparked by rumours the Bank of China will write down its investments in US mortgage securities.

"Now there's this fear that Asia has been caught up in this financial and economic weakness as well," he said.

Earlier a senior dealer at Shaw Stockbroking, Jamie Spiteri, said some market players who have borrowed to invest are being hurt by margin calls as stock prices slide.

"You've got forced selling," he said.

"At the same time, you've also got a lot of sophisticated trading out there which recognises that these stress levels have been reached.

"They're compounding the falls because there's what we call short position taking by professional investors."

Overnight, markets across Europe were down between 5 per cent and 7 per cent as investors worried about recession spreading from the US.

Wall Street itself was closed for a holiday, but a big fall on a key futures contract signalled a slump on the opening tonight.- Source: By Australian Broadcasting Corporation