THE Australian Securities and Investments Commission has dramatically widened its crackdown on short-selling, banning the practice across the entire sharemarket for at least a month as a "circuit breaker" to restore confidence.

But the stance has stunned local investors, who warned that market turmoil was likely to follow, given the ban could effectively shut down options and derivatives trading.

The Australian position goes further than US and British regulators, which last week detailed measures to ban short-selling on financial stocks only as part of efforts to prevent wild swings on global bank shares.

Australian and other European regulators followed with their own bans on short-selling on financial stocks, helping to spur the international rally in shares, including a 3.3% surge on Wall Street on Friday.

But last night ASIC widened its ban to include all shares, fearing that restrictions on short-selling on other exchanges would intensify risks on the Australian market.