Europe correspondent Emma Alberici, wires

Updated October 04, 2011 09:41:52

Aussie dollar dips on Greek fears

The Australian dollar has fallen to its lowest level in just over a year as Greece failed to meet targets for cutting its budget deficit.

The local currency fell to a low of about 95.1 US cents this morning and by about 10:15am (AEDT) it was buying 95.2 US cents.

The All Ordinaries lost about 0.6 of a per cent in early trade, despite stronger losses on Wall Street overnight where the Dow Jones lost more than 2 per cent.

The ASX 200 was down 20 points to 3,876.

European markets chalked up heavy falls, in line with Asian trade, on the first trading day of the fourth quarter.

At the close, London's FTSE-100 index was down 1.03 per cent. In Frankfurt, the DAX fell 2.28 per cent and in Paris the CAC-40 shed 1.85 per cent

European stock markets have all fallen sharply as investors retreated after Greece confirmed it had found a $2 billion hole in its budget, putting even more pressure on the eurozone.

The Greek government announced that the 2011 deficit is likely to be 8.5 per cent of economic output, which is down from the 10.5 per cent it registered in 2010 but well short of the 7.6 per cent target set by the EU and the International Monetary Fund.

Greece needs $11 billion to avoid going bankrupt next month and international inspectors in Athens have already put back a decision on whether to resume bailout funding for Greece.

It has, however, categorically ruled out any chance of a debt default.

Eurogroup chairman Jean-Claude Juncker said the currency partners had asked the Greek government to make further savings in 2012 and 2013 to secure EU and IMF approval at a special eurozone meeting called for October 13.

European markets chalked up heavy falls, in line with Asian trade, on the first trading day of the fourth quarter.

At the close, London's FTSE-100 index was down 1.03 per cent. In Frankfurt, the DAX fell 2.28 per cent and in Paris the CAC-40 shed 1.85 per cent.

Wall Street, having fallen sharply on Friday, posted modest losses as traders welcomed data showing that the US manufacturing sector is in better shape than previously thought.

The Dow Jones Industrial Average closed down more than 2 per cent, the S&P 500 fell to its lowest level in more than a year and the tech-heavy Nasdaq closed down 2.5 per cent.

The acknowledgement by Greece on Sunday that it would miss its deficit targets raised further uncertainty over whether its latest cuts would be enough for it to secure the next tranche of its multi-billion euro bailout.

Greece needs the payment to avoid bankruptcy.

Bank stocks have also been heavily marked down on their exposure to Greek debt, with France's Societe Generale ending down 6 per cent, BNP Paribas falling 5.9 per cent and Credit Agricole dropping 4.7 per cent. In Germany, Commerzbank was down 6.5 per cent.

Investors were also unnerved by official data showing that manufacturing activity in the eurozone in September shrank at its fastest pace in two years.

Australian shares plunged almost 3 per cent yesterday, shedding about $35 billion in value, bordering on the two-year market low set last week.

Overseas worries coupled with weaker commodity prices saw the benchmark ASX 200 index down 111.6 points, or 2.78 per cent, at 3,897.

The broader All Ordinaries index fell 109.4 points, or 2.69 per cent, to 3,960.7.

ABC/wires

European stocks fall on Greece deficits - ABC News (Australian Broadcasting Corporation)