China bid to calm credit crunch fears The S&P/ASX 200 Index is almost back to where it started the year. A string of high-profile profit warnings among some of Australia's biggest companies, including AMP, Goodman Fielder and Lend Lease, over recent weeks points to an economy that remains hobbled by slower-than-expected growth. The profit warnings came as the Australian sharemarket slipped to its lowest level for the year on Tuesday, as fears of a credit crisis in China - the world's second largest economy - triggered another plunge in global stocks. But Chinese central bank officials stepped in late Tuesday to reassure markets they would ensure sufficient liquidity was kept in the market to support growth. This spurred a late rally in Chinese stocks, after markets there fell deep into the red for the second consecutive day. Australian shares pulled back from the day's lows, with the S&P/ASX 200 Index closing 13.1 points lower at 4656 - only eight points above where it started the year. The broader All Ordinaries closed 17.6 points lower at 4633.5. Analysts said the profit warnings, which come as many companies are about to sign off their full year accounts at the end of this week, show the economy was not being sufficiently boosted by growth in non-mining sectors. Food products group Goodman Fielder issued a profit downgrade on Tuesday, just days after diversified property group Lend Lease warned its construction sector had weakened. Insurer AMP said on Monday it expected lower first-half underlying profits following poor claims and lapses in its Australian wealth protection business. Earlier this month, hearing implant manufacturer Cochlear said it expected a lower net profit for the first half of 2013, while waste handler Transpacific flagged weaker earnings. "I think there's no doubt that the transition's been a bit sluggish, particularly on the housing construction side, where there's been some weakness," UBS head of strategy David Cassidy said. I think the soft patch is going to extend until the election at least. Deutsche Bank's head of equity strategy, Tim Baker, said the recent profit downgrades continued a trend over the past few years. "I think the risk though is that December-half earnings need to be trimmed a bit, given that momentum in the economy doesn't appear to be particularly good based on the recent data flow," Mr Baker said. AMP's earnings warning reflected the stress being felt in the Australian economy amid a peak in the mining investment boom, Goldman Sachs analysts said. Australian households continue to save their cash, which is being reflected in poor claims and lapse experience in its Australian wealth protection business. There continues to be stress out there, particularly in the non-mining economy," the analysts said. They said the Reserve Bank should cut rates to stimulate the economy. Analysts said they expected the profit outlook next year to be boosted by a weaker Australian dollar, which has fallen more than 12 per cent since mid-April, lower interest rates and a revival in business confidence after the federal election. "US earners continue to stand out as the key overweight trade for now, but ultimately domestically exposed stocks and resources will likely offer the attractive returns on a 12-month view," Mr Cassidy said. If China gets through this situation with the banks, you can see a path to better profitability [for Australian firms] next year. Investors have begun to panic about the exposure of China's banking system to bad credit, after the central bank indicated last week it was up to individual banks to monitor risky loans. China's stockmarkets slipped further into bear market territory on Tuesday. The panic had spread further on Tuesday when Moody's lowered its credit outlook on the Hong Kong banking system from stable to negative over concerns of its exposure to borrowers on the mainland.