Shares fell in January as the United States Federal Reserve began the long process of withdrawing its massive stimulus and growing emerging market turmoil spooked investors.

The benchmark S&P/ASX 200 Index fell 162.2 points, or 2.9 per cent, to end the month at 5190, its worst January in four years, as the big four banks and resources giant BHP Billiton led the losses.

On Friday the top 200 stocks inched up 1.9 points. However the market ended the week down 1 per cent, chalking up a fourth straight week of losses. Global equity markets fell over the past five trading days as emerging markets were hit by large outflows as the Fed announced it will further reduce the size of its bond-buying program in February.

Throughout January, investors in the local market responded negatively to surveys that indicated China’s manufacturing sector is growing at a slower pace, which would mean less demand for Australia’s iron ore and coal exports. However, many long term investors see merit in the structural reforms China is trying to implement.

BHP Billiton fell 3.1 per cent to $36.57, while main rival Rio Tinto lost 3.6 per cent to $65.64 as the spot price for iron ore, landed in China, fell from $US134.20 a tonne to $US122.60 a tonne. Commodity analysts have been forecasting a weakening in the iron ore price for many months.

CIMB analyst Andrew Tang expects more companies to hit guidance this February reporting season than in previous years but expects to see more selling in iron ore stocks.

Australia’s biggest oil producer Woodside Petroleum shed 2.2 per cent to $37.38 as Brent crude oil lost $US3 to $US107.81 a barrel.

After leading the market higher in 2013, the big four banks started 2014 lower. Investors are eager to see the lenders’ half-year results in February for evidence company earnings growth will support current share prices.

Commonwealth Bank fell 4.2 per cent to $74.23 over the month, while Westpac Banking Corporation shed 3.9 per cent to $30.87. National Australia Bank lost 3.8 per cent to $33.25, and ANZ Banking Group fell 5.9 per cent to $30.13.

Consumer goods and services was the worst-performing sector in January, down 4.5 per cent after a number of retailers provided disappointing trading updates ahead of company reporting season.

“A few downgrades, particularly Super Retail Group and The Reject Shop, have made everyone a bit nervous about the whole retail sector. But the problems behind those downgrades seem quite company specific,” Whitehaven Private Portfolios fund manager Brendon Alford said.

The Reject Shop plummeted 35.3 per cent to $11.20 while Super Retail Group, owner of the Supercheap Auto chain, dumped 19.4 per cent to $10.71. JB Hi-Fi fell 15.4 per cent to $18 over the month despite getting a spike after a positive trading update.