The dollar defence came as fallout from the Federal Government's guarantee on bank deposits spread, with another big manager of retirement savings, Colonial First State, freezing withdrawals from its mortgage funds.

But the Government held the line against calls for the bank guarantee to be extended to the billions of dollars now tied up in frozen mortgage funds.

The freeze has left hundreds of thousands of retirees without access to their capital, and has added to the financial pain inflicted by the continuing plunge in the sharemarket.

As shares dived 1.6pc yesterday to a four-year low, new figures confirmed record declines in the value of superannuation savings.

A survey of balanced super funds found an average return of minus 11.6pc in the year to September - the worst rolling 12-month result since compulsory super began in 1992.

And after further heavy falls in share prices this month, the super figures are set to get worse.

But returns have been partially shielded by the plunging dollar, which offsets the impact of losses on super funds' overseas share investments.

The move by the Reserve Bank to support the dollar - only its second co-ordinated intervention since it plunged below 50 US cents in 2001 - began on Friday.

But it did not stop the dollar falling through US 61c at the weekend to a five-year low of US60.57c.

Last night, as the central bank prepared to intervene in the US and British markets, the dollar went lower again, briefly falling to a new five-year low of US60.25c in London. By 8.30pm it had recovered slightly to US60.6c.

The Reserve stressed it was not trying to support the dollar at any particular level.

"What we are doing is providing liquidity to an illiquid market," a spokesman said.

St George Bank chief economist Besa Deda said investors were seeing the Australian dollar as a "proxy" for world growth.

"As well, China is one of Australia's key trading partners and there are increasing signs that its economy is slowing. Those worries have spurred selling on commodity markets. This too is pushing the Aussie lower."

The Commonwealth Bank's foreign exchange chief, Richard Grace, warned that the dollar could revisit its all-time low of US49c, and there were risks it could fall further.

Meanwhile, market analysts are expecting an official interest rate cut of at least 0.5pc, and possibly 1pc, when the Reserve Bank board holds its next monthly meeting next Tuesday.