Australian stocks sank 2.1 per cent in early trading on Monday in response to the unprecedented U.S. credit rating downgrade and spreading debt woes in Europe, and after a downward revision of the domestic growth forecast last week.

The ASX 200 index lost 88 points in the first 15 minutes of trade, or 2.1 per cent, to 4,016.

U.S. rating agency Standard & Poor’s on Friday downgraded the long-term credit rating of the United States from the top rank of AAA by one notch, to AA+, for the first time.

Treasurer Wayne Swan said he was part of a push by finance ministers of the G20 group of major economies to orchestrate a coordinated response.

“We talked about the need for us to coordinate what we do and to work together,” he said. “There are big challenges in Europe and, as we know, economic growth in the US is weak.” He said it was too early to speak of a double-dip recession, saying “we’ll cross that bridge if we come to it.” Weighing heavily on the market was a warning on growth prospects from the central bank, issued last week in its quarterly report.

The bank slashed its domestic growth forecast for the current fiscal year ending June by 1 percentage point, down from the 4.25 per cent tipped in May to 3.25 per cent.

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