SYDNEY--Australian shares continued to weaken Tuesday after steep falls in the U.S. share market overnight as political gridlock pushed the U.S. government further toward a potential debt default. Resilient Chinese markets helped limit the weakness in Australia.
The benchmark S&P/ASX 200 closed down 0.2% at 5149.4, its third-consecutive decline, after hitting a four-week low of 5126.7 in early afternoon trading. Trading value increased to $4.1 billion Australian dollars (US$3.9 billion) as conditions returned to normal after a holiday in New South Wales state.
Energy stocks led broad-based falls in the index, with Woodside Petroleum down 0.8% and Oil Search falling 0.6%.
Safe-haven stocks bucked the weakness, with Commonwealth Bank, CSL Limited and AGL Energy rising 0.5% to 2.3%.
Australian shares hit a five-year high last month as optimism increased after the Liberal-National Party won the Federal election. However, the S&P/ASX 200 was heading for a 1.3% fall this month amid fear that a default by the U.S. could spark risk aversion in global markets.
"There's a lack of commitment by investors with the potential for a U.S. debt default which could severely disrupt global financial markets, even though there's not a high probability of a default occurring," said CMC Markets chief market strategist Michael McCarthy.
The U.S. S&P 500 fell 0.9% on Monday as a partial shutdown in the U.S. government continued and lawmakers showed no sign of compromise.
"Shares are vulnerable in the short term as uncertainty intensifies, but are likely to rally solidly into year-end once a solution to the debt ceiling is in place," said Shane Oliver, head of investment strategy and chief economist at AMP Capital. "The odds strongly favor a solution being found and a debt default being avoided."
Australian shares recovered from their worst levels Tuesday as China's share market rose more than 0.5% following week-long holidays. HSBC's China services purchasing manager's index for October continued to indicate economic expansion in Australia's biggest trading partner, despite a slight fall from the previous month.
Reflecting ongoing optimism surrounding election of conservative Prime Minister Tony Abbott last month, the National Australia Bank's monthly business-confidence index rose to +12 in September, the highest level in more than three years.
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(END) Dow Jones Newswires
October 08, 2013 02:30 ET (06:30 GMT)Copyright (c) 2013 Dow Jones & Company, Inc.