Headline indices of the Australian financial market tumbled to fresh two year low on Friday, 21 December 2018, as risk aversion selloff continued on tracking drop in Wall Street overnight after the Federal Reserve's hiked rates for a fourth time this year and plan to continue its balance sheet reduction and as the threat of a partial US government shutdown. In late afternoon trade, the benchmark S&P/ASX200 index dropped 41.82 points, or 0.76%, to 5,464 points, while the broader All Ordinaries index shed 42.41 points, or 0.8%, to 5,530.50 points.

The threat of a US government shutdown and of further hikes in US borrowing costs inflamed investor unease over the economic outlook. The possibility of a shutdown worsened after the Federal Reserve announced another interest rate hike on Wednesday and made only subtle adjustments to the course of monetary policy tightening next year despite rising worries about global growth. The Fed's move on Wednesday to largely adhere to its plan for more rate hikes over the next two years and keep its balance sheet reduction plan on autopilot spooked investors already worried about slowing economic growth.

Markets were further spooked when US President Donald Trump refused to sign legislation to fund the US government unless he got money for a border wall, thus risking a partial federal shutdown on Saturday. President Donald Trump told Republican congressional leaders he will not sign a government funding bill because it fails to include enough funding for border security.

Shares of energy sector declined after crude oil suffered another rout overnight, off 5% to their lowest level in more than a year. Among the biggest losers were Beach Energy and Santos, down 1.5% and 0.8%, respectively. Oil Search and Woodside were between 0.7 and 1% weaker.Shares of financials were lower, with big four lenders Australia's biggest banks, Australia and New Zealand Banking Group, National Australia Bank, Commonwealth Bank of Australia, and Westpac Bank all down about 0.5%, but the real damage was felt by the insurers. IAG shares fell 3%, with the company expecting the bill from Thursday evening's storm to hit A$169 million,.while fellow insurers QBE and Suncorp lost 1.1% and 4.1% respectively.

Materials sector recorded gains, with BHP rising 1%. Rio Tinto, South32 and BlueScope were also higher

Gold stocks rebounded, as the price of the precious metal benefited on safe-haven bids after the U.S. Federal Reserve largely retained its plans to tighten policy next year despite heightening economic risks. Evolution Mining rose 3.4%, while Newcrest Mining climbed as much as 3.6%.

Among individual stocks, Healthscope shares soared as much as 7% on possibility of a bidding war after hospital operator said its preferred bidder Brookfield Asset Management has indicated its readiness to proceed with its sweetened offer based on the due diligence materials received so far. It also said another bidder - the consortium of Australian private equity firm BGH Capital and partners - had indicated it is able to commence due diligence for their bid made in October.

CURRENCY: Australian Dollar edged up against greenback on Friday. The Australian dollar was quoted at 71.14 US cents, up from 70.91 US cents on Thursday.

OFFSHORE MARKET NEWS: US share market declined on Thursday, as investors worry that global economic growth is cooling off, concerns over a partial government shutdown, and that the U.S. could slip into a recession in the next few years. The Dow Jones Industrial Average fell 464.06 points, or 1.99%, to 22,859.6, the S&P 500 lost 39.54 points, or 1.58%, to 2,467.42 and the Nasdaq Composite dropped 108.42 points, or 1.63%, to 6,528.41.