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Australian stocks close 1.5% lower on China

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Australian shares have posted their largest one-day loss in two months as nervous investors looked to steep falls on Asian markets due to fears of a credit crunch in China.

Chinese shares slumped more than five per cent on Monday as the government showed little willingness to address a liquidity squeeze in the domestic financial system.

Markets fear the move could hurt economic growth.

The benchmark Shanghai Composite Index lost 113.67 points, or 5.48 per cent, to 1,959.42 in afternoon trade, breaching the 2,000-point level analysts had pegged as support.

IG Markets Evan Lucas said the news from China, including rate jitters and perceptions about the crackdown on shadow banking were hurting the local market.

“They’re talking about looking at policy changes but not actually implementing them yet,” Mr Lucas said.

China-focused resources companies were hit hard, as was financial services company AMP.

Nearly $1.9 billion was been wiped off the market value of wealth manager AMP after it warned of a fall in its first half profit.

AMP shares fell 64 cents, or 12.8 per cent, to $4.34.

Mining giant BHP Billiton fell 3.4 per cent to $31.35 while Rio Tinto shares lost 2.1 per cent to $51.54.

It came after Rio Tinto announced it has taken its diamonds business off the market.

Gold miner Newcrest closed below $10 for the first time in a decade, losing 7.9 per cent to $9.53 while Fortescue Metals shares fell below $3 for the first time since September last year, finishing the day 4.2 per cent lower at $2.92.

Banking stocks were also in the red, with Commonwealth Bank losing 32 cents to $65.74, ANZ shedding three cents to $27.38. National Australia Bank gave up 30 cents to $28.68 and Westpac fell 17 cents to $27.55.

Meanwhile, shares in supermarket group Metcash rose 4.9 per cent to $3.61 after it lifted its underlying full year profit by 6.9 per cent to $281 million.

KEY FACTS

* At the close on Monday, the benchmark S&P/ASX200 index was down 69.7 points, or 1.47 per cent, at 4,669.1.

* The broader All Ordinaries index was down 72.7 points, or 1.54 per cent, at 4,651.1.

* The September share price index futures contract was 62 points lower at 4,626, with 30,991 contracts traded.

* National turnover was 1.6 billion securities worth $4.2 billion.