KEY POINTS:
MELBOURNE - The Australian share market closed around two and a half per cent weaker despite gains in resource giant BHP Billiton and a positive lead overnight from Wall Street.
At 1615 AEDT close, the benchmark S&P/ASX200 index was down 83.4 points, or 2.3 per cent, at 3540.0,
while the broader All Ordinaries dropped 95.8 points, or 2.68 per cent, to 3479.6.
On the Sydney Futures Exchange, the December share price index futures contract fell 82 points, or 2.27 per cent, at 3537 points on volume of 29,150 contracts.
Margin calls after BHP Billiton scrapped its US$66 billion (A$100 billion) proposed bid for Rio Tinto had the equities market finish in negative territory.
IG Markets research analyst Ben Potter said the market had drifted throughout the day, with sellers selling into the strength.
"The BHP Rio issue is an absolute mess for anyone who holds Rio Tinto," he said.
"There has been a few big margin calls go out for that today," he said.
"I think there is going to be an overhang of stock being sold for Rio Tinto over the next couple of days."
Market talk was that Rio would have to raise capital as well, Mr Potter said.
BHP Billiton finished $1.03, or 3.93 per cent, stronger at $27.25, while rio Tinto plunged $21.89, or 34.26 per cent, to $42.01.
Other resources stocks also lost ground by 1615 AEDT, with Oil Search down 27 cents, or 5.68 per cent, to $4.48, Santos losing 56 cents, or 3.85 per cent, to $14.00 and Woodside Petroleum $1.60, or 4.78 per cent, weaker at $31.90.
Newmont Mining Corporation was the only bright spot in the gold sector, gaining seven cents to $4.86, while rival Newcrest Mining eased 45 cents, or 1.77 per cent, to $25.00.
Spot gold in Sydney was trading at US$813.75 an ounce, down US$2.40 on yesterday's local close of US$816.15.
Losses across the banking sector were a surprise given the bailout package for Fannie Mae and Freddie Mac in the US, Mr Potter said
"I think it's just about short term profit taking in a bear market," he said.
Westpac dropped $1.23, or 6.9 per cent, to $16.60, while Commonwealth Bank fell $1.34, or 3.94 per cent, to $32.66.
ANZ lost 50 cents, or 3.44 per cent, to $14.05 and National Australia Bank gave up 30 cents to $19.57.
Upmarket retailer David Jones Ltd reaffirmed its profit forecast for fiscal 2009 after reporting a 6.3 per cent fall in first quarter sales.
The company said it expected difficult trading conditions for the rest of the year but that it was well prepared to weather the difficult times.
Shares in David Jones eased five cents or two per cent to $2.45.
Other retailers also lost ground, with Wesfarmers down 64 cents, or 3.26 per cent, to $19.00 and Metcash falling 10 cents, or 2.43 per cent, to $4.02.
Media stocks were mixed, with Consolidated Media easing five cents to $2.15, and News Corporation falling 26 cents to $10.90.
News' non-voting stock dropped 36 cents, or 3.37 per cent, to $10.31.
Telstra was the top traded stock by volume, rising six cents or 1.46 per cent to $4.18 after confirming it has lodged a bid to build the national broadband network.
Its turnover reached 58.2 million shares traded for a value of $243.7 million.
Preliminary national turnover reached 1.16 billion shares worth $4.92 billion, with 369 stocks up, 536 down and 295 unchanged.
- AAP