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Market winded as rumours fly about troubled U -

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TIM PALMER: The share market has suffered sharp losses today as resources companies were sold off heavily. The benchmark index fell 118 points, or over 2 per cent.

The Australian dollar too has fallen around one US cent over the past 24 hours.

For some analysis on what's spooked the market, I'm joined in the studio by finance reporter David Taylor.

David, how widespread was this? Which markets were affected?

DAVID TAYLOR: Tim, it covers a few markets.

First of all, the share market - shares, as you mentioned, fell today; also commodities and currencies too. There's a thematic running through there, but we'll get to that a little bit later.

First to the numbers. The benchmark S and P/ASX200 today as you mentioned fell 118 points, or 2.3 per cent, to 4,980. That's below the 5,000 level. Again, not a technically important level but a big round number, and today's fall was the steepest fall since May 2012.

To give you an idea, resources companies led the market down. BHP down 3.8 per cent to $37.17, and Woodside Petroleum down 2.8 per cent to $37.95.

Now some of the action did come from commodities markets. On overseas markets, the London Metals Exchange, one of the biggest commodities markets in the world - looking at copper, lead, aluminium, all down last night around about 1 per cent.

And of course in Asian trade today, the Shanghai copper metals market is watched pretty closely, especially by resources traders here in Australia and all commodities there down around about 2.3 per cent.

The Australian dollar, Tim, was affected. I know one US cent doesn't sound like too much, but the dollar at the moment is trading at 102.5 US cents, so it's a significant whack in 24 hours.

TIM PALMER: So what's the connection, David? What is the link to this sudden outbreak of pessimism on commodities exchange and equities?

DAVID TAYLOR: Well as you mentioned there, it seems to be a rush on commodities themselves, because the Australian dollar has been affected. The Australian dollar is a commodities currency. It changes its value depending on things like interest rates, but also on commodities prices. So as commodities prices fall, the Australian dollar falls with it.

So clearly, commodities markets, or commodities, are the link here, and also market sentiment. The market's been spooked this afternoon.

We saw a couple of the better performing sectors today were consumer staple stocks and Telstra. They're considered safer sectors, or safer stocks. And the big miners, energy companies, and banking stocks were sold off today.

So clearly, the market was a bit spooked.

TIM PALMER: The market had been posting some highs, as you'd noted in the past few days. What was it that kicked off this sudden turn back to pessimism?

DAVID TAYLOR: Well, a couple of things. The US Federal Reserve minutes were released very early our time this morning while everybody was asleep.

You have to remember that the Federal Reserve is pumping $85 billion a month into the US banking system, every single month.

Now a couple of members on the board, in the minutes, were noted as saying that there may need to be an end to the big money-printing program before too long. They say that unemployment won't need to come down to that 6.5 per cent level before they stop the money-printing.

That spooked the market, but in addition to that Tim, there had been rumours flying around this afternoon and this morning that there could have been a large US hedge fund that's run into some trouble.

As a result, the fund managers there have started to sell commodities, and of course they've started to sell Australian mining companies in order to fix up their balance sheet.

I spoke to Marcus Padley at the close of the market. Here's what he had to say:

MARCUS PADLEY: It may just be, having worked on the institutional side of the market for many years, it would only take one international fund to make some small asset allocation change that would include a billion dollars being sold in the Australian market, something like that, which would create this sort of day.

And it is interesting because the Dow Futures is pretty much unchanged at the moment. If the Dow was unchanged overnight, we'd be bouncing 50 points tomorrow.

TIM PALMER: So David, away from that sort of ethereal idea of confidence that you can't quite pin down, the things you can pin down - we're halfway through the results season. How are earnings to value starting to look?

DAVID TAYLOR: Well Tim, last year companies flagged that they were in a bit of trouble. They were trying to increase their margins, the banks were trying to increase their margins, the industrial companies were trying to get their bottom lines going again.

And whilst this half year reporting season has seen some profits turn around, a lot of it has been to do with job cuts initiated last year and early this year, and of course restructuring.

And that includes companies like Fairfax. This morning, they released their results. Pacific Brands, producing things like underwear, and Qantas. So a big range of companies all sacking staff, restructuring and trying to work out how to boost their bottom lines.

But the consensus from fund managers, they're a little bit concerned at the moment. We're not seeing fundamental bottom line revenue growth. That's what's concerning fund managers at the moment.

Now here's what investment adviser Simon Bylsma had to say to PM a short time ago.

SIMON BYLSMA: And so we've seen, particularly today, Origin Energy is a good example of that. It's had a good report, but the stock is actually off 8 per cent based on the fact that finally as investors were able to look at their earnings for the last half and to evaluate the stock based on those fundamental criteria.

TIM PALMER: That was Simon Bylsma from Bellmont Securities and before that, PM's finance reporter David Taylor.