Morning traders. Tin hats on.Market wrap: Australian shares face...

Morning traders. Tin hats on.

Market wrap: Australian shares face heavy losses after Wall Street's worst night since October.

The threat of tighter financial regulation in the U.S. drove share indexes to a second day of deep losses. The benchmark Dow Jones Industrial Average fell 213 points or 2%, its biggest drop since October 30. The S&P 500 slid 1.9% and the Nasdaq fared best, down 1.1%.

In response, local futures traders expect our market to tumble around 2% at today's opening bell, wiping out most of the Christmas "Santa rally". The March SPI futures contract closed 93 points lower at 4708.

U.S. investors were rattled when President Barack Obama proposed the most extensive restrictions on banks since the start of the financial crisis. Obama's plan would restrict proprietary trading by commercial banks, killing off one of their major methods of generating profit. Analysts said the proposals would struggle to get through Congress.

Share prices of the big U.S. banks were flogged. JP Morgan fell 6.7%, Bank of America 6.12% and Citigroup 5.2%. Goldman Sachs was down 4% despite releasing a better earnings result than analysts expected.

"We were already at a stage where people were worried about the run the market had had and maybe looking for a correction," said the chief market strategist at a U.S. firm. "I'm not necessarily saying we're going to have one that's going to last, but the news the last few days has at least been enough to get things going in that direction."

Most U.S. sectors closed red. Among the biggest falls were precious metals miners -4.6%, REITs -2.9%, oilers -2.4%, biotechs -2.1% and airlines -2%.

Also weighing on the market in early trade was a four-month high for the U.S. dollar index, a measure of the greenback against a basket of rivals. President Obama's bank plan took some of the steam out of the charging greenback but commodity prices suffered further losses.

Crude oil futures slid for a second session as a drop in U.S. stockpiles failed to offset concerns about weak demand and China's bid to dampen its economy. Crude for March delivery was recently trading 2.23% lower at $76 a barrel.

Precious metals were pressured by the rising U.S. dollar. Gold futures fell back to late-December levels as yesterday's Chinese inflation data fuelled fears of further measures to cool Chinese spending. The spot gold price was recently trading at $1,094.80 an ounce, down $16.50 on the precious New York close.

Base metals also caught the downdraft. Copper fell 1.8% in New York trade, while aluminum, lead, tin and zinc lost ground in London. Nickel bucked the downtrend.

European markets fell heavily for a second day on weakening resources prices, teetering Greek banks and the threat of tighter financial regulation. Britain's FTSE tumbled 1.58%, Germany's DAX 1.79% and France's CAC 1.7%.

TRADING THEMES TODAY

BOUNCE TRADES: Same strategy as yesterday - look for oversold shares falling to support levels in the first half hour and buy for an intraday bounce if the support holds. Two days of heavy falls will have increased the list of prospects significantly this morning but many support levels will collpase. Stay nimble and cut losers quickly. Happy hunting.

ECONOMIC NEWS: Local import/export data are due at 11.30 am. For once, the U.S. diary is empty tonight. Let's hope the absence of gloomy economic news allows the market room to recover.

Good luck to all.