Australia Hit As Crisis Grows

US REGULATORS and banks are attempting to provide a $US70 billion ($A86 billion) financial lifeline for teetering insurance giant American International Group to avert the spread of the Wall Street meltdown following the collapse of investment bank Lehman Brothers and shock sale of Merrill Lynch.

Emergency talks are taking place to sell the key investment banking assets of Lehman to Barclays as global banks and investors come to grips with the unravelling of the securities giant, which filed for bankruptcy early on Monday with $US128 billion in unsecured debts.

Australia's big four banks, led by ANZ and Commonwealth Bank have up to $412 million in loans and credit exposures to Lehman, with the extent of any recovery unknown. Even less certain is the fate of billions of dollars in bonds and derivatives backed by Lehman and held by Australian banks and fund managers.

Markets around the world were shaken by the drama unfolding on Wall Street, with the local benchmark S