The share market was over 2 per cent weaker at noon as US financial sector uncertainty continued to affect local banks and insurers.
At 12pm (AEST), the benchmark S&P/ASX200 was 108.4 points lower, or by 2.21 per cent, at 4795.4, while the broader All Ordinaries had lost 96.4 points, or 1.94 per cent, to 4860.7.
The September share price index futures contract gave up 124 points to 4801 on volume of 55,059 contracts.
Lehman Brothers continues its fight for survival in the US, while rumours circulated that insurance giant AIG is unsteady and Bank of America may be eyeing Merrill Lynch.
Austock Securities Senior client adviser Michael Heffernan said investors continued to show nervousness as they monitored events in the US.
"We have waxed and waned over the morning as the American futures market shows it wasn't going to drop as much (as expected), so it's almost like a knee-jerk reaction to whatever they do," Mr Heffernan said.
"(The banks) are the key driver. Other than that our resources stocks are doing alright, but the banks are getting belted at the moment."
Locally, Commonwealth Bank of Australia fell $1.74, or 4.05 per cent to $41.25, while second-ranked Westpac gave up 49 cents, or 2.08 per cent to $23.03.
National Australia Bank lost $1.06, or 4.42 per cent to $22.90, while ANZ Banking Group shed 76 cents, or 4.41 per cent to $16.49.
Westpac takeover target St George dropped 92 cents, or 2.97 per cent to $30.04, while bank and insurer Suncorp-Metway was off 58 cents, or 5.7 per cent to $9.60.
On Friday night, the Dow Jones Industrial Average of 30 heavyweights experienced a volatile session, finally settling 11.72 points lower, or 0.1 per cent to 11,421.99, while the broader Standard & Poor's 500 did better by lifting 2.65 points, or 0.21 per cent, to 1,251.7.
The NASDAQ, which lists more recently floated giants, lifted 3.05 points, or 0.14 per cent to 2261.27.
Insurers were bearing the brunt, too, with QBE down 98 cents, or 4.05 per cent to $23.22, AXA Asia Pacific losing 28 cents, or 5.05 per cent to $5.27, and IAG falling six cents, or 1.43 per cent to $4.15.
In investment banking, Macquarie Group shed $3.46, or 7.86 per cent to $40.55, while ailing second-tier Babcock & Brown plummeted 28 cents, or 14.74 per cent, to $1.62.
Babcock & Brown's former chief executive, Phil Green, today announced his resignation as a non-executive director of company.
At 12.08pm (AEST), the miners had slipped from earlier gains, with BHP Billiton down one cent to $35.99, while takeover target Rio Tinto had fallen 25 cents, or 0.24 per cent to $106.00.
The local energy sector was stronger.
Woodside Petroleum added 23 cents, or 0.44 per cent to $52.84, while mid-tier New Guinea producer Oil Search gained 19 cents, or 3.38 per cent to $5.81.
Santos, reported to be facing a larger bill than first thought for mud volcano drill-hole damage near Java's second-largest city of Surabaya, was off 68 cents, or 3.51 per cent to $18.69.
In the news, two major shareholders in Western Australian iron ore miner Midwest Corporation have accepted the takeover offer from Chinese steelmaker Sinosteel.
Both Murchison Metals and Armadale Offshore had accepted its offer, taking acceptances to "in excess of 82 per cent" of Midwest's issued shares.
Midwest shares were flat at $6.37, while Murchison Metals lost 14.5 cents, or 7.44 per cent to $1.805.
Centro Properties Group says a potential buyer of its Centro America Fund property portfolio has terminated a contingent agreement for the acquisition of the assets.
Centro Properties shares fell two cents, or 19.05 per cent to 8.5 cents, while Centro Retail Group shares lost three cents, or 20.69 per cent to 11.5 cents.
At 12.18pm AEST, spot gold in Sydney was trading at $US783.55 an ounce, up $US28.35 on the Friday's Sydney close of $US755.20.
The gold sector was stronger, with Newcrest Mining adding $1.24, or 6.36 per cent to $20.74, while Newmont Mining put on 20 cents, or 4.31 per cent to $4.84.
Lihir Gold lifted 17.5 cents, or 9.64 per cent to $1.99.
In local media, News Corporation (which is the parent company of the publisher of NEWS.com.au)was down 82 cents, or 4.62 per cent to $16.93, while its non-voting scrip dropped 77 cents, or 4.41 per cent to $16.68.
Ten Network lost 3.5 cents, or 2.16 per cent to $1.585, while Seven Network dipped 19 cents, or 2.45 per cent to $7.58. Fairfax Media slipped five cents, or 1.73 per cent to $2.84, while Consolidated Media was down seven cents at $3.12.
The most traded stock by volume was Oz Minerals, with 36.9 million units changing hands worth $54.08 million. Oz Minerals shares were up 6.5 cents, or 4.81 per cent to $1.415.
Market turnover was 501.89 million shares, valued at $2.21 billion, with 271 stocks up, 607 down and 270 unchanged.
Share market rebounds on US rally
Investor Report: Cash for Future Equity
