Fears that Dubai may default on its debt sent shares sharply lower in the biggest drop since June, with banks and miners among the largest drops.
At the close, the benchmark S&P/ASX200 index was down 136.5 points, or 2.9 per cent, to 4572.1, while the broader All Ordinaries dropped 130.4 points, or 2.8 per cent, to 4597.2. The fall sliced $38 billion from the market's value and left the ASX 200 down about 2.4 per cent for the week.
Banks were 3.3 per cent lower, as were materials stocks, while energy shares lost 3 per cent.
''This is a black Friday for investors,'' said Macquarie Private Wealth associate director Lucinda Chan. ''It's been a blow to market sentiment and confidence has been shaken.
The Australian dollar also sank, extending the losses to more than 1 US cent since yesterday's local close. It was recently buying 90.17 US cents, 60.4 euro cents, 54.9 pence and 77.6 yen.
RBS Morgans Brisbane private client adviser Craig Walker said investors sold out of banking stocks in the wake of the Dubai World development.
‘‘People are just being a little bit cautious at the moment and making sure they have got a bit of cash to play with when the situation in Dubai becomes a bit more clear,’’ Mr Walker said.
Mr Walker said he expected Australian banks to be unaffected by the unfolding situation.
‘‘At the end of the day, I don’t think it’s going to be a big issue for our major banks,’’ Mr Walker said. ‘‘Obviously the European banks have got a much greater exposure.’’
All the major banks underperformed the broader market on a day when four stocks fell for every stock that managed a gain. Commonwealth Bank fell $1.78, or 3.4 per cent, to $50.60, ANZ ended down 79 cents, or 3.6 per cent, at $21.19, Westpac dropped 92 cents, or 3.8 per cent, to $23.13 and NAB slipped $1.12, or 4 per cent, to $27.01.
ANZ, NAB and Westpac said they had no material exposure to the Dubai World affair, while Macquarie said it had negligible exposure.
Also, engineering firm WorleyParsons said it was not exposed to the debt-laden Dubai World, with the majority of its Middle East operations based elsewhere.
‘‘That’s given people an excuse to take some profits from BHP, which to be honest is one of the few stocks to have held the market up over the last couple of weeks,’’ Mr Walker said. ‘‘If it wasn’t for the relatively strong performance of BHP, then the market would probably be a lot lower than where it is currently.’’
BHP Billiton ended down $1.41, or 3.4 per cent at $40.39 and Rio Tinto fell $2.10, or 3 per cent, to $68.55.
Gold stocks finished mixed. Lihir closed 10 cents lower at $3.57, Newcrest backpedalled $1.07 to $36.93, but Newmont managed to buck the trend and rose 1 cent to $5.90.
In other news, retailer Metcash said it is making a takeover bid for Mitre 10. However, Mitre 10 said it was expecting more proposals, after it began a search months ago for a partner to help it grow and remain ‘‘Australia’s only truly independent’’ national hardware network.
Metcash shares lost 7 cents, or 1.5 per cent, to $4.56.
Boart Longyear was the top traded stock by turnover, with 102.4 million shares worth $31.4 million changing hands. The drilling company’s shares ended 1.5 cents, or 4.7 per cent, lower at 30.5 cents.
Preliminary national turnover reached 2.77 billion shares, worth $6.5 billion, with 228 stocks up, 939 down and 303 steady.