Oct. 10 (Bloomberg) -- Australian stocks plummeted the most since the October 1987 market crash as a credit freeze deepened, worsening the outlook for the global economy.

National Australia Bank Ltd., the nation's biggest lender by assets, slumped 12 percent, while BHP Billiton Ltd., the world's largest mining company, fell 7 percent to a 1 1/2 year low. Australia's currency sank 20 percent this week against the yen, the most since it began trading freely in December 1983.

``It's scary,'' said Prasad Patkar, who helps manage $1.8 billion at Platypus Asset Management in Sydney. ``Equity markets are pricing in a very severe, deep recession as a function of people not getting credit.''

Australia's S&P/ASX 200 Index plunged 360.20 points, or 8.3 percent, to 3,960.70 at the close of trading, extending its weekly decline to 16 percent, the biggest rout in the index's history dating back to 1992. The All Ordinaries Index fell 351.9, or 8.2 percent, to 3,939.40, the most since Oct. 20, 1987.

About A$800 billion has been wiped off the value of Australian shares in the past five months as the collapse of the U.S. subprime mortgage market triggered credit markets to freeze. The benchmark has tumbled 42 percent from its Nov. 11 peak.

``We haven't had wealth fall at this sort of rate since the early 1980s recession,'' said Kieran Davies, chief economist at ABN Amro Australia Ltd. in Sydney. ``A lot of marginal investment plans will be delayed or canceled. Companies in Australia are in reasonable financial shape, but they'll put off hiring.''

The Dow Jones Industrial Average in the U.S. yesterday dropped to below 9,000 for the first time since 2003, and the S&P 500 plunged 7.6 percent, on speculation carmakers, insurers and energy companies will be the next victims of the credit crisis.

`Thousand Cuts'

``The 1987 crash was over in a day or two, but this one is like a death by a thousand cuts,'' said Brian Ingham, a fund manager at Sydney-based Nucleus Global Investors, which invests in global utility and infrastructure stocks. ``We've now entered the point of unreality where I'm almost immune to what I'm seeing. There's nothing in living memory that comes close to this.''

Ingham, who helped start Nucleus in August with A$25 million, says the fund is unlikely to attract new investors amid the crisis, and that it has lost 10 percent since it was started.

National Australia Bank slumped 12 percent to A$20.80. BHP lost 7 percent to A$27.74.

Babcock & Brown Ltd., a manager of infrastructure assets, slumped 5.6 percent to A$1.01, taking its 2008 plunge to 96 percent. Macquarie Group Ltd., Australia's largest investment bank, dived 9.5 percent to A$28.52, taking this year's fall to 63 percent.

Valad Property Group plummeted 34 percent to 8.3 cents, a record low. The company's shares fell 50 percent yesterday after saying receivers were appointed to its customer Petrac, which owes Valad A$31.1 million ($20 million).

Sundance Resources Ltd., seeking to build a $3.3 billion iron ore project in Cameroon, was the benchmark's fourth-worst performer, tumbling 26 percent to 8.9 cents.

Woodside Petroleum Ltd., operator of Australia's North West Shelf liquefied natural gas venture, lost 11 percent to A$37.20, the most since 1987, after crude oil fell to an 11-month low in New York.

``Investors are pricing in a reasonably significant and protracted recession,'' said Troy Angus, who helps manage $3.1 billion at Paradise Investment Management in Sydney. ``The market's anticipating corporate earnings in Australia to go down 20 percent at least.''

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

Last Updated: October 10, 2008 01:47 EDT