The local share market has given up all of Tuesday's gains and then some after Fitch Ratings downgraded the United States' credit worthiness, citing a steady deterioration in governance
The S&P/ASX200 index suffered its worst loss in four weeks on Wednesday, falling 96 points, or 1.29 per cent, to 7,354.6, while the broader All Ordinaries dropped 95.3 points, or 1.24 per cent, to 7,568.4.
The sell-off occurred after Fitch downgraded the US credit rating to AA+ from AAA, saying there has been a decline in the coherence and credibility of US policymaking during the past two decades.
"The repeated debt-limit political stand-offs and last-minute resolutions have eroded confidence in fiscal management," the rating agency said.
RBC Capital Markets’ head of Asia FX Strategy Alvin Tan noted Standard & Poor had already downgraded the US credit rating after a 2011 budget stand-off, "so it's not like some earth-shaking revelation, but it has affected markets to some extent".
Tim Waterer, chief market analyst at KCM Trade, agreed the Fitch downgrade wasn't a "game-changer" but it was enought to "put risk appetite on the back-foot, as evidenced by the red numbers across the board".
Contributing to the traders' caution is the crucial US non-farm payroll data for July to be released on Friday night, AEST, Mr Waterer said.
All of the 11 sectors of the ASX200 finished in the red, with utilities the biggest loser, falling 2.2 per cent as AGL Energy dropped 4.8 per cent to $11.69 on a broker downgrade.
All of the Big Four banks were lower, with CBA down 2.3 per cent to $103.46, ANZ dropping 2.1 per cent to $25.35, NAB retreating 1.6 per cent to $28.11 and Westpac down 2.0 per cent to $21.98.
In the heavyweight mining sector, BHP dropped 1.1 per cent to $45.85, Rio Tinto slid 0.9 per cent to $115.82 and Fortescue Metals fell 2.0 per cent to $21.55.
Pilbara was a rare winner, rising 0.4 per cent to $4.87 after it and Calix decided to build a $104.9 million mid-stream plant at Pilbara's Pilgangoora lithium mine to demonstrate how lithium processing could be powered by renewable energy.
In small caps, PYC Therapeutics rose 3.5 per cent to 6c after its potential treatment for a blinding eye disease called retinitis pigmentosa type 11 received a fast-track designation from the US Food and Drug Administration.
Also, Aeris Resources plunged 29 per cent to a three-year low of 27c after making what executive chairman Andre Labuschagne said was the "tough but appropriate decision" to place its Jaguar zinc-copper mine near Leonora, WA, into care and maintenance mode.
"Between the operational challenges, lower zinc price and cost inflation it became obvious that the best value for our shareholders was to pause production at Jaguar," Mr Labuschagne said.
Mesoblast was in a trading halt, pending an announcement related to FDA action on its lead drug candidate, a stem cell-based treatment for children with acute graft-versus-host disease.
The Australian dollar meanwhile had dropped to its lowest level in two months against its US counterpart following Tuesday's decision by the Reserve Bank not to raise rates.
The Aussie was buying 65.79 US cents, from US 66.47 US cents at Tuesday's ASX close.
ON THE ASX:
* The S&P/ASX200 index finished Wednesday down 96.1 points, or 1.29 per cent, at 7,354.6.
* The All Ordinaries dropped 95.3 points, or 1.24 per cent, to 7,568.4.
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 65.79 US cents, from 66.47 US cents at Tuesday's ASX close
* 93.87 Japanese yen, from 94.87 Japanese yen
* 59.89 Euro cents, from 60.53 Euro cents
* 51.52 British pence, from 51.82 pence
* 107.84 NZ cents, from 107.66 NZ cents.
