China credit crunch fears sent the stockmarket tumbling almost 1.5 per cent lower, with investors fleeing materials as China called on its banks to control credit expansion risks and declared liquidity in its financial system was at "a reasonable level".
At the official market close, the benchmark S&P/ASX200 index fell 1.47 per cent to 4669.1 points, while the broader All Ordinaries index shed 1.54 per cent to 4651.1 points.
China's growing liquidity crisis has been drowned out by the frenzy over the US Federal Reserve's taper talk but spiking inter-bank rates have catapulted it to the forefront of markets' concerns.
The People's Bank of China edict was its first official comment since China's libor rate hit the highest levels since 2003 last week.
Fears over the cash squeeze have intensified worries about China's economic slowdown, pushing the benchmark Shanghai Composite Index under the 2000-point support level on Monday to be 3.54 per cent lower at 1999.71 in late trading.
IG market analyst Evan Lucas said the Chinese central bank could be starting to change its hawkish stance for the first time since last September, with some reports suggesting it is looking to fine tune monetary policy.
"Lending between Chinese banks has been heating up for months as the central government cracks down on shadow banking and…the huge amount of illegal capital inflows that have made credit in China easy," Mr Lucas said.
"Some are suggesting that the current state of affairs in China is very similar to that seen in the US pre-GFC.
"Leverage was cheap and easy, investors and business leaders alike snapped up credit with glee and high leverage levels were king – then it collapsed. Is China in a similar state of affairs?"
If the ASX was to find its feet again this year, cyclical stocks would need positive leads from China, he said.
Resources stocks led the broader market lower, with the major miners both firmly in the red. Rio Tinto declined 2.13 per cent to $51.54, while BHP Billiton slipped 3.39 per cent to $31.35.Fortescue Metals fell 4.26 per cent to $2.92. Whitehaven Coal lost 3.4 per cent to $2.27, while Newcrest tumbled 7.92 per cent to $9.53.
In the energy sector, Santos retreated 2.37 per cent to $12.37, Oil Search shed 0.88 per cent to $7.86 and Woodside decreased 3.49 per cent to $34.26.
Financials also took a hit. Commonwealth Bank declined 0.48 per cent $65.74, while ANZ Banking Group fell 0.11 per cent to $27.38.National Australia Bank shed 1.04 per cent to $28.68, while Westpac Banking Corporation contracted 0.61 per cent to $27.55. Investment bank Macquarie Group retreated 1 per cent to $41.40.
In the insurance sector, QBE decreased 2.09 per cent to $15.48, Insurance Australia Group lost 1.1 per cent to $5.38 and Suncorp shed 3.22 per cent to $11.73.
The retail sector was mixed. Wesfarmers lost 0.5 per cent to $38.03 while Woolworths tumbled 0.75 per cent to $31.75.Myer added 0.88 per cent to $2.28 while rival David Jones increased 1.22 per cent to $2.48.Harvey Norman added 1.63 per cent to $2.49, while JB Hi-Fi edged 0.19 per cent lower to $15.64.In media, Fairfax Media lost 3 per cent to 48.5c, while rival News Corp was flat at $30.43.Ten Network was unchanged at 26.5c. Southern Cross Media was flat at $1.345, while Seven West retracted 1.55 per cent to $1.905.
Meanwhile, blue chip Telstra fell 1.1 per cent to $4.50, while Qantas lost 2.28 per cent to $1.285.
