Employment figures released this morning revealed a massive drop in full-time jobs for December. Employers shed almost 44,000 positions, taking the unemployment rate to 4.5%, up from 4.4%. ''We're only going into the start of the employment down trend in Australia," said Angus Gluskie of White Funds Management. ''We haven't experienced conditions deteriorating yet but it's all about to happen here.''

Poor retail sales in the US and more warnings about the health of big European banks had sent overseas markets sharply lower overnight. Asian markets also slumped, with Japan's Nikkei 225 off 4.1% and Hong Kong's Hang Seng 5.3% lower. Dow futures also pointed to further weakness on Wall Street, trading down 52 points recently, at 8,107. The dollar resumed its decline over much of the past week, trading recently at 65.76 US cents. It had also sunk below the 50 euro cent mark, buying 49.9 euro cents, and it was worth 58.5 yen.

Rio retreat Rio Tinto shares ended the day down $3.31, or 8.2%, to $37.30 after reporting an 18% drop in fourth-quarter iron ore output, while sales from its key West Australian iron ore mines fell 23%.

The world's fourth biggest miner also announced chairman Paul Skinner will be replaced in April by Jim Leng, who is currently deputy chairman of Tata Steel Ltd in India. BHP Billiton sank as much as $2.04, or 6.6%, to $28.90. Redbank Mines became the latest mining company to slow developments, announcing it had placed its namesake copper mine in the Northern Territory on care and maintenance to focus on exploration after the slump in commodity prices. Its shares edged 6% higher to 1.8 cents.

The materials sub-index ended the day down 6.4% in recent trading, compared with a 3.8% slump in the financial sector and 3.7% for energy stocks. Banks

Among major banks, National Australia Bank ended the day down $1.07 cents, or 5.2%, to $19.60, the Commonwealth Bank dropped $1.11 cents,or 3.9%, to $27.31, ANZ lost 76 cents, or 5%, to $14.57, and Westpac fell 59 cents, or 3.7%, to $16.16. White Fund's Mr Gluskie said Bank of America's disclosure after close of the US stockmarkets that it would need more bailout funds has "added to the fall" today, along with further declines overseas as Asian markets opened. Overall, people's expectations that the bailout packages announced at the end of last year would resolve fundamental problems in the global economy have proven false, he said.

As people have started to get a view of economic figures from US, the actual news flow shows things "are getting worse." People were naively optimistic early on," Mr Gluskie said. "Hope has been replaced with disappointment.''

Energy, gold In the energy sector, Santos shares lost 29 cents to $13.80, Woodside Petroleum ended down $1.60, or 4.5%, at $34.05. In New York, light sweet crude oil for delivery in February, shed 50 cents to $US37.28 a barrel on the New York Mercantile Exchange (NYMEX) overnight.

In the gold sector, Newmont added three cents at $5.42, Newcrest fell $1.75 to $28.25, and Lihir lost 11 cents to $2.55. The price of gold in Sydney at 1625 AEDT was $US809.00 per fine ounce, down $US17.65 on yesterday's close of $US826.65.

IG Markets analyst Ben Potter said the local market had been spooked by the sharp fall in US markets, lower prices for base metals in London, and analyst and broker downgrades for various blue-chip stocks. ''The market looks like it is gathering some momentum to the downside,'' Mr Potter said. He said investors were not feeling confident that the corporate earnings season in the US or the reporting season in Australia would be positive, and no one knew where the catalyst for a sustained turnaround would come from.

Retailers, media The major retailers were weaker.

Centro is in a trading halt pending an announcement "regarding the outcome of negotiations on the extension of its finance facilities that are due to expire today," the company said. The company is seeking another extension to repayments for $6 billion of debt. Centro Properties last traded at 12 cents, while Centro Property was last changing hands at 12 cents. Telstra shares were 12 cents lower at $3.61 while rival Singapore Telecommunications fell 13 cents, or 5%, to $2.46.

Among media stocks, News Corp was down 97 cents at $13.01 and its non-voting stock lost 92 cents to $12.13. Fairfax dropped 17.5 cents to $1.475, while Consolidated Media fell 12 cents to $1.86.

Qantas was down 18 cents at $2.36 and Virgin Blue lost 2 cents to 33.5 cents. Preliminary national turnover was 1.07 billion shares worth $3.02 billion, with 713 stocks down, 204 up and 247 unchanged. BusinessDay with AAP