What you need2know

SPI futures up 8 points or 0.2% to 4783

AUD 70.61 US cents, 81.23 Japanese yen, 62.54 Euro cents and 48.83 British pence

On Wall St, at about 2.45pm in New York, Dow +0.1%, S&P flat, Nasdaq +0.1%

In Europe, Stoxx 50 -1.8%, FTSE -1%, CAC -1.7%,  DAX -1.1%

In London, BHP -5.9%, Rio -4.9%

Spot gold +0.2% to $US1191.45 at 2.51pm in New York

Brent crude -7.7% to $US30.35 at 2.26pm in New York

LME copper -2.2%, zinc -2.3%, nickel -1.7%

What's on today

HIA new home sales December. Local earnings: AGL Energy, Boral, Bradken, CBA, Computershare, Oz Minerals, Reckon, Stockland.

US Federal Reserve chair Janet Yellen will appear before the Senate Banking Committee. San Francisco Fed boss John Williams speaks. OPEC monthly oil report. Earnings: Time Warner, Humana, Cisco Systems, Expedia, Tesla Motors, Heineken, Carlsberg, Telenor ASA, AP Moeller-Maersk A/S.

Stocks in focus

Metals and mining stocks slumped in London after Goldman Sachs Group said the recent rally was unjustified. "We view this rally as unjustified given the supply-demand picture remains unchanged," Goldman said in a note to investors. "Although the quantum of price decline we forecast is less than that of last year, we expect its impact to be painful, as most companies are at the point of operational and financial leverage."

Currencies

The yen strengthened past 115 per US dollar for the first time in more than a year as haven assets benefited from concern about the creditworthiness of banks and companies. The Japanese currency advanced 1 per cent to 114.705 per dollar, after reaching 114.21, the strongest level since November 2014. The Swiss franc jumped 1 per cent and the euro gained 0.4 per cent to $US1.1238.

Worldwide financial turmoil has halted the greenback's 1 1/2-year gain as traders unwind bets the Federal Reserve will tighten borrowing costs this year after increasing rates in December for the first time in almost a decade. The Bloomberg Dollar Spot Index, which tracks the US currency against 10 of its counterparts, fell 0.1 per cent, declining for a second day.

The biggest pound bear expects the currency to lose 17 per cent this year. And that's if Britain remains part of the European Union. Svenska Handelsbanken isn't exactly an outlier, either. The next three most pessimistic forecasters in Bloomberg's sterling survey predict declines of at least 8 per cent to levels last seen in 1985, and all of their estimates are based on an assumption citizens will vote to remain in the EU in the forthcoming referendum.

Commodities

Oil fell for a fourth day in New York as price volatility climbed to near the highest levels in seven years and Goldman Sachs warned it will "spike" as prices continue to seek an equilibrium, which could drag crude below $US20 a barrel.

The global oil surplus will be bigger than previously estimated in the first half, increasing the risk of further price losses, according to the International Energy Agency. Supply may exceed consumption by an average of 1.75 million barrels a day in the period, compared with an estimate of 1.5 million last month. The agency trimmed estimates for global oil demand. "With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term," the Paris-based adviser to 29 nations said in its monthly market report. "In these conditions the short term risk to the downside has increased."

Oil could drop below $US20 a barrel as the search for a level that brings supply and demand back into balance makes prices even more volatile, said Jeff Currie, Goldman's head of commodities research. "Once you breach storage capacity, prices have to spike below cash costs because you have to shut in production almost immediately," Currie said in an interview with Bloomberg Television. Volatility will surge and he "wouldn't be surprised if this market goes into the teens".

United States

The S&P 500 index now trades at the lowest since April 2014, and is now down 13 per cent from its May record. Financial shares added to losses that have the group trading at the lowest level since 2013. Energy shares in the index plunged 3.7 per cent.

"Generally, the tenor of the market right now is very fragile, it's a market where you could wake up any morning where XYZ thing has happened in the world and that's sending the market lurching one way or the other," said Katrina Lamb, the head of investment strategy and research at Bethesda, Maryland-based MV Financial, which oversees $US500 million. "That's a tough time generally to play the rational game."

The Nasdaq Composite Index dropped 0.2 per cent to the lowest since October 2014, as its decline from a record stood at 18 per cent. Declines this week have been heaviest in shares with the highest price-earnings ratios and among momentum stocks, causing the engine of the bull market to sputter as it nears its seventh anniversary.

Europe

European stocks tumbled for a seventh day and a gauge of banks slid to its lowest level since 2012 as the global equity rout showed no signs of abating.

Deutsche Bank reversed gains, falling 4.3 per cent to its lowest price since at least 1992 even as it reassured investors that it has enough cash to pay its debts. German Finance Minister Wolfgang Schaeuble said he's not worried about Deutsche Bank after the shares and bonds of Germany's biggest lender took a battering over investor concern about capital and funding levels. "No, I have no concerns about Deutsche Bank," Schaeuble told Bloomberg Television in Paris after a meeting of French and German finance chiefs on Tuesday. He didn't elaborate further. The cost of protecting Deutsche Bank's debt against default has more than doubled this year, while the shares have dropped about 39 per cent.

Greece's Eurobank Ergasias led European lenders lower, sliding 12 per cent, as the cost of insuring financial debt rose amid concern over whether banks are strong enough to cope with a downturn. Credit Suisse Group lost 8.4 per cent after the Swiss National Bank said it could reduce its negative deposit rate further. Commerzbank fell 4.4 per cent to its lowest price since July 2013. Swedbank slid 5.7 per cent as Sweden's biggest mortgage bank ousted its chief executive officer. Svenska Handelsbanken added 1.6 per cent after reporting a 35 per cent jump in fourth-quarter profit.

What happened yesterday

Australian shares suffered their biggest fall of the year on Tuesday, losing more than $40 billion in value as investors dumped banking stocks amid growing global concerns about the health of the financial sector.

The S&P/ASX 200 index closed at a two-and-half year low, dropping 2.9 per cent to 4832.1, its largest one-day slump since late September. The benchmark index has lost more than 8 per cent since the start of the year. The broader All Ordinaries fell 2.8 per cent to 4882.6.