Photo: Sean Gallup/Getty.

Australia is officially in a bear market, the victim of a fierce global selloff.

The ASX 200 was more than 20% from its high of 5996.9 on March 3 last year. The index crashed below the key 4800 point level, for the first time since July 2013, after losing 2.88% yesterday in a global avalanche.

The market was down more than 2.2% today before recovering lost ground. At the close, the ASX 200 was at 4,775.70, down 56.38 points or 1.17%.

The contagion of fear spread to this region from the US and European markets, with weakened energy and financial stocks as investors reacted to fears over the stability of banks.

While Wall Street closed flat, European shares were down for a seventh session in a row with the banking sector weaker by 4%.

At the centre of the banking rout is Deutsche Bank, whose shares shed another 4.3% after dropping 9.5% on Monday, and the bank’s ability to pay the interest on its bonds.

Market sentiment is down on banks generally despite assurances from key German officials and talk of a multibillion bond buyback from Deutsche .

The banks are also seen as being at risk because of exposed to the resources sector, which has been lashed by falling commodity prices. Investors reason that if, or when, mining companies start to default, then the banks are in the line of fire for losses on their loans.

Australian was under intense focus today with the local market getting more attention than usual because regional exchanges, except Japan, are closed for the Chinese New Year holidays.

Tokyo was feeling the heat with the Nikkei 225 closing down 2.3%.

And in Australia it was the banks and financial stocks being punished for the second session, again swept up in the that global selloff.

“Globally there is a hunt for return of one’s equity, not a return on equity,” says Chris Weston, chief market strategist at IG.

“The ASX financial sector just looks so bearish from a technical perspective and this is killing the overall markets, although better buying has been seen into the afternoon and this could be very telling.

“You just know things are getting desperate when you hear calls that short selling should be banned and this rhetoric has certainly picked up.”

Australian banks have now dropped 15.2% year-to-date and almost 30% since the April high last year. The ASX 200 is down almost 10% since the start of 2016.

The exception today was the Commonwealth Bank which today posted a record profit and maintained its dividends. Its shares were at $73.72, up 1.1%.

“It seems having revenue and loan growth and a very compelling yield means little when there is a solvency issue in European banks and a consistent flattening of the US yield curve leading to concerns over US banks margins,” says Weston.

The ANZ lost 1.6% to $22.42 and the NAB 1.9% to $24.42. The Bank of Queensland was down 6.8% to $10.86.

BHP shed almost 2.5% to $15.65. Among energy stocks, Santos clawed back from being down 7% to close at $2.98, down 2.6%.

Telstra, which yesterday lost its mobile network to human error, was 3.2% weaker at $5.43.

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