Australia shares drop 2pc on US concerns

With Australia's June half reporting season wrapped up, investors' attention turned back to the global picture, with fears of a US recession keeping investors on the sidelines.

"The market looks cheap, there's cash around, but there's big uncertainties," said Rohan Walsh, investment manager at Karara Capital.

"(US growth) remains the largest uncertainty out there, and that continues to weigh on investors," he said.

The big banks fell the most, with three of the top four and Macquarie Group down more than 2 percent.

Their US peers fell sharply on Friday after a US regulator sued 17 big lenders over losses on about $200 billion of bonds backed by subprime mortgages.

Gold stocks led the 24 stocks that were trading higher, after gold prices jumped as investors sought a safe haven in face of the weak outlook for the US economy. Australia's biggest gold miner, Newcrest Mining , rose 2.1 percent.

The benchmark S&P/ASX 200 lost 85.5 points to hit 4,157.4 as of 0140 GMT, adding to a 64.6-point fall last Friday.

New Zealand's benchmark NZX 50 index fell 0.8 percent to 3,278.0.

STOCKS ON THE MOVE

Coal rail transporter QR National rose 0.9 percent, beating the market, after lining up a consortium of coal firms to support a A$900 million rail project to a new export terminal in Queensland state.

The market's fall was aggravated by several stocks trading without rights to their dividends, led by top stock BHP Billiton , which fell 2.7 percent.

Others hit were Australia's biggest wealth manager, AMP , down 5 percent, Seven West Media , down 11 percent, and OneSteel , down 5.9 percent.

Copyright Reuters, 2011