It was a month many investors would rather forget as heightened worries about Greece and other debt-laden European economies sent stock markets and the dollar plunging.

The benchmark ASX200 share index trimmed its losses during the day but still ended about 7.3 per cent lower for May - the worst monthly return since Europe's debt crisis erupted in May 2010.

The index closed down 17.9 points, or 0.44 per cent, at 4,076.3 points after being about 1.5 per cent lower at one point.

The broader All Ordinaries index gave up 14.9 points, or 0.36 per cent, to 4,133.8. The index's loss was about 7.5 per cent in May, or the equivalent of about $100 billion in market value.

For the month, the biggest losers among the major stocks included Aquarius Platinum losing 45 per cent, Whitehaven shed 25 per cent, Toll Holdings slumped 21 per cent, OneSteel fell 19 per cent and Fortescue Metals sank 18 per cent.

Top gainers for May included Ramsey Health, up 7.7 per cent, News Corp 6.8 per cent, AGL Energy 4.7 per cent, Coca-Cola Amatil 3.2 per cent and CSL 2.7 per cent.

European shares, meanwhile, opened slightly higher after Wednesday's steep losses, with the FTSEurofirst 300 up 0.4 perc ent at 979.65 points, on track for its biggest monthly loss since August when markets were similarly beset by fears over Europe's debt crisis.

Dollar, bonds

The Australian dollar edged back above the 97 US-cent level after earlier touching six-month lows on a global retreat to the greenback.

At its local close, the dollar was buying 97.2 US cents, placing it on course for a loss of about 6.8 per cent in May - its worst month since it dived 8.8 per cent last September.

Yields on Australian government debt maturing in two years or longer fell to record lows as a report showed home-building approvals unexpectedly dropped in April, boosting speculation the Reserve Bank will cut its cash rate again when it meets on June 5.

“Spain is becoming a huge problem,” said Derek Mumford, a director in Sydney at Rochford Capital. “A lot of money is going to be needed to bail them out. The Aussie (dollar) will inevitably be dragged down to a very important support area at 94.50 to 95 US cents.”

The 10-year Australian yield slid below 3 per cent for the first time, to as low as 2.856 per cent, the least in data compiled by Bloomberg going back to 1969. The rate on two-year notes fell to 2.108 percent, also an all-time low.

Partial rebound

While there was a partial recovery in the afternoon session, the Australian sharemarket ended well down amid broadbased declines.

‘‘Fear has definitely got the market around its little finger today,’’ CMC Markets sales trader Ben Taylor said in a research note.

Financial stocks closed 1.14 per cent lower and were the worst performers on the market, according to IRESS data.

ANZ was down 7 cents at $20.90, CBA fell 34 cents to $49.40 and Westpac slipped 13 cents to $20.29.

NAB, which was trading without a dividend today, posted the biggest declines among stocks in the S&P/ASX50, dropping 5.63 per cent, or $1.34, to $22.48.

Mr Taylor said the financial sector’s declines came as Moody’s probed the strength of lenders mortgage insurance providers.‘

"Brokers are also moving negative on the banks considering the lower growth environment, potential for margin squeeze and the difficulty to foresee a change in economic conditions,’’ Mr Taylor said.

Standard & Poor’s Ratings Services, meanwhile, gave South Australia a blow, lowering its long-term rating to 'AA+' from 'AAA', on the state government's debt and that of its financing arm, South Australian Government Financing Authority. It affirmed the 'A-1+' short-term rating. "The outlooks on the ratings remain negative," the agency said.

Miners off

Market heavyweight BHP was down 20 cents at $31.97, while Rio Tinto fell 49 cents to $56.86.

On a positive note, traditionally defensive stocks held up well on the day, with the healthcare sector gaining 1.15 per cent, utilities rising 1.01 per cent and consumer staples advancing 0.73 per cent.

In a late development, casino operator Echo Entertainment caved into demands from billionaire James Packer for an extraordinary meeting of shareholders. Echo shares rose 6 cents, or 1.4 per cent, to $4.40.

Also making news on Thursday, news reports said Telstra was considering buying television broadcaster Nine Entertainment Co.

Telstra closed down 1 cent at $3.55.

David Jones said total sales for the three months to April 28 fell 2.9 per cent, with the department store chain gearing up for a big end of financial year clearance.

The stock fell 4 cents at $2.21.

The spot price of gold in Sydney was $US1,562.70 per fine ounce, down $US14.175 from yesterday’s local close of $US1,548.525 per ounce.

Gold, though, was on course for a fourth consecutive monthly loss, trading about 6 per cent lower in US-dollar terms for May.

National turnover was 1.9 billion shares worth $5.8 billion, with 481 stocks up, 499 down and 394 unchanged.

AAP with BusinessDay, Bloomberg, Reuters