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Market crushed: $25 billion wiped off

Following Monday’s large fall, yesterday appeared to signal a return to ‘onwards and upwards’ for the Australian share market. Unfortunately, it wasn’t to be, with the ASX crashing today.

The S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO) has now wiped out most if not all of yesterday’s gains, losing $25 billion in value and sliding more than 2% in mid-afternoon trading. The falls are have come in every sector, and it’s a sea of red out there.

Amongst the top 20 stocks, Wesfarmers Limited (ASX:WES) and BHP Billiton (ASX:BHP) were the biggest losers falling 3.4% while Rio Tinto Limited (ASX:RIO) and Macquarie Group (ASX:MQG) were both down 3.3%.

The reasons for falls appear to be many. Fears of a credit crunch in China are rising amid reports the authorities were trying to quash any negative reporting, in an effort to stabilise the financial markets. China’s official purchasing managers’ index data came out today and dropped to 53.9 in June, showing the country’s manufacturing growth has had the brakes applied.

Locally, weak retail sales numbers in Australia suggest that our retailers are still struggling, as consumers keep their hands in their pockets, despite record low interest rates. Activity in the services sector fell for the 17th consecutive month, as construction and manufacturing were flat, while mining investment slowed.

Some commentators have suggested that the Reserve Bank hasn’t done enough to stimulate the economy, and will need to cut rates further to entice consumers to spend. So far they appear to be right. With the mining boom tapering off, the central bank’s hopes that other sectors would step up to take its place in generating economic growth appear to be nothing more than hope.

Foolish takeaway

While the falling Australian dollar should help our major export industries, it doesn’t appear to be having much effect on our economy yet.

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Motley Fool writer/analyst Mike King owns shares in BHP.

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