The share market has had its biggest drop in more than two years as weak bank earnings sent investors running for the exits.

The All Ordinaries index lost 2.2 per cent to close at 5,691 and the ASX 200 index tumbled by 2.3 per cent to finish on 5,692.

Bank stocks had another rough ride after the Commonwealth Bank reported flat earnings for the first three months of this year, with a net profit of $2.2 billion.

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The bank said home lending growth was disappointing and expenses rose because of growing regulatory costs.

Commonwealth Bank shares closed down 5.9 per cent at $82.98. It was the biggest fall in more than six years.

Other banks were also punished, Westpac lost another 3.7 per cent to $33.99 after it announced a disappointing half-year profit earlier this week.

Financial shares were responsible for around two thirds of the market’s total losses.

Retail shares under pressure following Woolworths job cuts

Retail shares were also under pressure after the supermarket giant Woolworths announced it was cutting 800 jobs as part of a cost cutting strategy.

Woolworths reported a fall in sales for the first three months of the year, blaming cheaper petrol prices.

Woolworths shares closed down 5 per cent to $28.14 while Wesfarmers, which owns Coles supermarkets, lost 0.5 per cent down to $44.35.

Internet provider iiNet closed down 2.8 per cent at $9.72 after the company’s board backed an improved takeover bid from smaller rival TPG.

TPG is now offering a $9.55 cents a share for iiNet, up from its previous offer of $8.60, after rival M2 joined the bidding war.

TPG shares were one of the few to rise, finishing up 4.2 per cent on the news.

The Australian dollar continues to rise following yesterday’s 25 basis point cut to official interest rates.

The dollar is fetching 79.7 US cents, 70.9 euro cents, 95.4 Japanese yen and 52.3 British pence.

In commodities West Texas crude oil is higher at $US60.33 a barrel and in Singapore, Tapis crude is also higher $US68.99 a barrel.

Spot gold is buying $US1196 an ounce.