The Australian share market has recovered most of its early losses, despite an overnight sell-off across US and European markets.

A sharp rise in COVID-19 Delta infections worldwide appears to have revived concerns about shutdowns and a delayed economic recovery, sending investors fleeing for safety.

The ASX 200 index was down 0.5 per cent (to 7,247 points) by 2:00pm AEST.

It was a major improvement compared to its 1.1 per cent drop earlier on Tuesday morning.

Stocks like JB Hi-Fi (+3.1pc), Zip Co (+6.1pc), Mesoblast (+3.2pc), Pointsbet (+3.4pc) and Super Retail Group (+2.3pc) posted solid gains.

ANZ has outperformed the other big three banks, which are down between 0.1 and 0.5 per cent.

ANZ's share price jumped 1.3 per cent, after its surprise announcement that it would would buy back $1.5 billion worth of its stick =from the market, starting from August.

Some of the worst performing stocks were Unibail Rodamco Westfield (-5pc), Virgin Money UK (-3.5pc), AGL Energy (-2pc), Altium (-2.6pc) and Qantas (-1.8pc).

Materials was the weakest sector, pulled down by BlueScope Steel (-2.7pc), Rio Tinto (-1.7pc) and BHP (-1.5pc).

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BHP has reported strong iron ore production levels (284.1 million tonnes) — at the top end of its guidance — thanks to record output at its two mines in the Pilbara region of WA.

Insatiable Chinese demand and supply issues in Brazil have propelled iron ore prices above $US200 a tonne. This is expected to help BHP post bumper annual profits in August, alongside rivals Rio Tinto and Fortescue Metals Group.

However, the world's largest listed miner posted a 4 per cent drop in fourth-quarter output, compared with the previous year.

BHP reported an 11 per cent rise in nickel production for the year. But it said production fell in other divisions, including copper (-5pc), petroleum (-6pc) and energy coal (-17pc).

Consumer optimism fades

"Investors are extremely worried that ... another lockdown could be a month or two round the corner," said Russ Mould, investment director at AJ Bell.

"COVID is spreading fast again and the airlines, restaurants and leisure companies may not get the strong summer trading they've long hoped for.

Meanwhile, consumers are feeling a lot less optmistic, in response to Greater Sydney's lockdown being extended last week and Melbourne being placed in its fifth lockdown.

Consumer confidence recorded its sharpest weekly fall (down 5.2 per cent) since March last year, accordng to ANZ data.

The final reading was 104.3 points, well below the monthly average since 1990 (at 112.6 points). Nevertheless, a score above 100 means the optomists outnumbered the pessimists in the ANZ survey.

"Confidence actually dropped the most in Adelaide (-9.5pc) and Perth (-8.2pc) and was also down sharply in Sydney (-4.8pc) and Melbourne (-3.7pc)," ANZ's head of Australian economics David Plank wrote in a note.

Oil Search rejects takeover bid

Oil Search has rejected an unsolicited takeover bid from Santos, which valued the Papua New Guinea-focused oil and gas producer at $8.8 billion.

Santos made the approach on June 25, but the proposal was only revealed on Tuesday, following the shock exit of the company's relatively new chief executive.

Oil Search said the proposal was not in the best interest of its shareholders.

It is currently searching for a new boss to replace Keiran Wulff, who quit after just 17 months in the job due to health issues and a whistleblower complaint about his behaviour.

Santos said it proposed to offer 0.589 new Santos shares for each Oil Search share held. Based on Santos' closing share price on June 24, that was worth $4.25 per Oil Search share (a 12 per cent premium to Oil Search's share price at the time).

But Santos has not given up hope. In a statement, it said "the merger proposal represents an extremely attractive opportunity" for investors of both companies.

A takeover of Oil Search would give Santos a bigger stake in the "PNG LNG" project in Papua New Guinea, considered one of the world's lowest cost liquefied natural gas producers. It would also become operator of the Pikka oil project in Alaska.

Shares in Oil Search  jumped 4.6 per cent (to $3.84), and have recovered most of yesterday's losses.

Santos dropped 4 per cent (to $6.55) amid a broad sell-off in energy players hit by OPEC’s plans to lift oil production caps.

Aussie dollar hits eight-month low

The Australian dollar fell to 73.22 US cents (down 1.1 per cent) as investors fled from risk-sensitive currencies.

Intead, there was strong demand for traditional safe-havens like the US dollar (which hit a three-month high), Japanese yen, Swiss franc and US government bonds.

"The Australian dollar will feel more downward pressure than most because a Covid outbreak has locked down close to half the economy," Commonwealth Bank currency strategist Joseph Capurso said.

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Bitcoin, which is often touted as a safe-haven asset by its supporters, dropped 6 per cent (to $US29,600).

The volatile digital currency has lost more than half its value since mid-April, when it was at a record high of almost $US64,900.

Elon Musk has been a powerful force on social media, whose posts have driven up (and down) the price of cryptocurrencies.

But the Tesla chief's backflip (in deciding to no longer offer bitcoin as a payment method) along with his public rebuke of its carbon footprint, and China's crackdown on cryptocurrenncies are some factors which recently led to a huge drop in bitcoin's value.

Meanwhile, the yields on America's 10-year Treasury bonds slipped to a five-month low of 1.176 per cent.

There is an inverse relationship between the price of bonds and how much interest they pay. So you'll earn a lower yield as more people purchase bonds and their price goes up.

Markets worried about economic recovery

On Wall Street, the Dow Jones index posted its biggest fall in almost nine months. It lost 726 points (or 2.1 per cent) to close at 33,962.

The S&P 500 dropped for its third straight day – down 1.6 per cent (to 4,258), 

The tech-heavy Nasdaq Composite fell 1.1 per cent (to 14,275).

European markets suffered even heavier losses, including Britain's FTSE (-2.3pc), Germany's DAX (-2.6pc) and France's CAC (-2.5pc).

The CBOE Volatility index (VIX) surged to its highest level since May. The index, which measures investor anxiety, jumped 22 per cent to 22.5 points.

"Despite the vaccine rollout, markets do not appear to be learning to live with COVID-19," ANZ economists wrote in a note.

"With so much good news and optimism having been priced-in this year, an adjustment to sentiment is not an uncommon occurrence, particularly as the pendulum is slowly swinging towards less accommodative monetary [policy] settings."

Spot gold was steady at $US1,811.12 an ounce.

Oil slumped by about $US5 a barrel overnight, closing out its worst day since March.

In percentage terms, Brent crude futures plunged 6.7 per cent (to $US68.65 a barrel). West Texas Intermediate crude plummeted by 7.4 per cent (to $US66.54 a barrel).

This was after the world's 23 largest oil-producing nations (collectively known as OPEC+) agreed to boost output, stoking fears of oversupply just as rising COVID-19 infections once again threaten demand.

The nations (including Russia, Saudia Arabia and the United Arab Emirates) pledged to increase production by 400,000 barrels per month, starting from August.

ABC/Reuters