MELBOURNE: Australian shares fell over 1 percent on Thursday with investors nervous ahead of an Italian bond sale, which is seen as a test of European banks' willingness to shore up ailing euro zone nations and ease fears of a global slowdown.
The sale of up to 8.5 billion euros ($11 billion) in Italian bonds will be the first opportunity to see how willing banks are to buy longer-term sovereign debt with the nearly 500 billion euros they borrowed last week from the European Central Bank.
"Italy have got a significant amount of money that's got to be raised in the first quarter and through the whole year....So we do need to see this being reasonably well participated in," said Chris Weston, institutional dealer at broker IG Markets.
Italy needs to sell around 91 billion euros worth of bonds in the first four months of 2012.
"If there's a huge skew towards holding the short-dated over the 10-year, then you could see risk assets coming under pressure," Weston said.
The benchmark S&P/ASX 200 index lost 48.8 points to 4,040 as of 0100 GMT in light volume, hovering at a one-month low after a 1.3 percent fall on Wednesday. All but 25 components of the index were negative.
The benchmark is on course for its second consecutive annual fall. It is down 14.85 percent so far this year.
Worries about the impact of a European recession on China, the biggest customer for Australia's major miners, weighed on the market, pushing BHP Billiton down 1.1 percent and Rio Tinto down 0.8 percent in thin trading.
Gold miners slid after gold prices fell 2 percent to a three-month low. Newcrest Mining dropped 3.6 percent to a near 20-month low.
Retailers remained under fire following warnings of disappointing Christmas sales. Department store chain Myer Holdings fell 1.8 percent to a new record low of A$1.92. JB Hi-Fi slid 2.1 percent to a 33-month low of A$11.11.
"I still think it's a tough gig at the moment in retail land. You'd only be buying if you think the stocks have been oversold. But right now the clarity on earnings is very low," said Weston.
New Zealand's benchmark NZX 50 index fell 0.4 percent to 3,223.4 in early trade.
STOCKS ON THE MOVE
KBL Mining jumped 17 percent to A$0.27 after lining up Chinese state-owned Guangdong Guangxin Mining Resource Group to buy a 15 percent equity stake in the company and a 25 percent stake in its Mineral Hill copper and gold mine.
Molybdenum and copper developer Moly Mines dropped then rose 3 percent after halting operations at its Spinifex Ridge project in Western Australia as its Chinese backer cut funding due to weak molybdenum prices.
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