Australian stocks have sunk to their lowest level this year as investors begin to panic over the crisis in Europe after reports of a run on Spanish banks.

Europe’s main stock markets tumbled and the euro hit a new four-month US dollar low as worries spiked over the eurozone debt crisis that is plaguing Greece and now circling Spain.

The newspaper El Mundo reported depositors had withdrawn one billion euros in the recently nationalised Spanish bank, Bankia since last Wednesday.

At the open on Friday, the benchmark S&P/ASX200 index was down 64.5 points, or 1.56 per cent, at 4,092.9, while the broader All Ordinaries index was down 64.5 points, or 1.55 per cent, at 4,143.7.

A week of turmoil on global markets has led to all of this year’s gains being wiped off the local Australian market.

The previous 2012 lowest point for the All Ordinaries was on January 3 when the index reached 4,155 points while the lowest point on the ASX/200 was at January 3 when it reached 4,101 points.

IG Markets analyst Stan Shamu said investor worries had extended into the Australian market.

‘‘Investors are now in panic mode,’’ Mr Shamu said.‘‘The fear factor is at play with the whole Spanish bank uncertainty. The fears are that the banks are not in good shape and it gives rise to fears of a run on banks.’’

But he predicted bargain hunting would kick in at some stage on Friday.

Due to the uncertainty, the best performing sector at the open was gold stocks.The spot price of gold in Sydney was $US1,574.77 per fine ounce, up $US26.64 from Thursday’s local close of $US1,548.13 per ounce.

Australia’s biggest company BHP was 2.1 per cent lower at $32.10, while Rio was down 3.5 per cent at $56.18. Fortescue Metals lost 6.5 per cent to $4.69.The major banks were all around two per cent lower.

US stocks have closed with losses well above one per cent as negative news continued from Europe.National turnover was 269.2 million securities worth $797.4 million.


In corporate news, ANZ chief executive Mike Smith will deliver a speech to a Trans Tasman Business lunch.

Dollar drops

The Australian dollar has fallen back below 99 US cents amid reports of widespread bank withdrawals in Spain and Greece as fears grow that the eurozone debt crisis will worsen.

In early trade, the dollar fell as low as 98.85 US cents and was recently buying 98.90 US cents, down from 99.47 US cents on Thursday.

HiFX senior trader Stuart Ive said a news report last night that deposit holders had withdrawn around one billion euros from the, partially nationalised, lender Bankia in the past week saw equity markets and the Australian dollar slump overnight.

‘‘That report suggested basically a run on Spanish banks,’’ he said.

Similar reports have emerged regarding banks in Greece, where the country is facing a possible exit from the euro zone, in recent days.

Mr Ive said global confidence took another hit early this morning after ratings agency Moody’s downgraded the debt ratings of 16 Spanish banks overnight.

‘‘It’s just adding to a very dark situation that we are seeing,’’ Mr Ive said.

Aussie bonds rally

Australian bond futures have risen to new record highs as Europe’s debt crisis took a turn for the worse as the focus shifted to Spain’s troubled banks.

The 10-year bond futures contract was trading at 96.875 (implying a yield of 3.175 per cent), a record high, up from 96.780 (implying a yield of 3.220 per cent), on Thursday. The June three-year bond futures contract was at 97.490 (2.510 per cent), up from 97.380 (2.620 per cent).

RBC Capital fixed income strategist Michael Turner said Australian bond futures rallied after the Spanish reports  that deposit holders had withdrawn around one billion euros from the lender Bankia in the past week.

‘‘Any time you see footage of people lining up out the front of banks its creates negative sentiment,’’ he said. ‘‘The focus is probably now on Spain as much as it is on Greece.’’

Ratings agency Moody’s added to the negative sentiment after it downgraded the debt ratings of 16 Spanish banks early today. Meanwhile, another ratings agency, Fitch, downgraded the credit rating of Greece, which installed an interim government overnight ahead of fresh elections next month, to CCC overnight, warning of the ‘‘heightened risk’’ the country could be forced out of the euro zone.

BusinessDay, with wires