Rise in Gold Pare Losses in Sydney Stocks

123jump.com Staff
18 Sep, 2008
New York City

Stocks in Sydney, Australia fell 2.4% after financials plunged on the continued weakness in the U.S. trading. In the overnight trading in the U.S., benchmark indexes fell more than 4% after banks and brokerage stocks fell. Morgan Stanley and Goldman Sachs last two remaining independent large brokerages fell sharply as investors feared that excessive leverage on their balance sheet will drag down two remaining independent large borkerage houses. Rising gold prices lifted mining stocks.

[R]3:00AM New York, 7:00PM Sydney – The Reserve Bank of Australia injects A$3.015 billion after interbank loan rates surge and lending freezes up.[/R]

The benchmark index in Australia fell as financial and real estate stocks declined. In the overnight trading in the U.S., benchmark indexes fell more than 4% after banks and brokerage stocks fell. Morgan Stanley and Goldman Sachs last two remaining independent large brokerages fell sharply as investors feared that excessive leverage on their balance sheet will drag down the two. Lehman Brothers filed for bankruptcy and Bear Stearns was forced to sell at a distress price to JP Morgan. Merrill Lynch was sold in a shot-gun marriage to Bank of America. The largest insurance company AIG also succumbed to excessive risk taking after it underwrote insurance contracts covering risky mortgage bonds.

However losses in Sydney trading were pared by the increase in gold and silver prices.

Market Sentiment

In Sydney trading ASX 200 fell 2.43% or 114.9 to 4.607.30.

Of the 200 ASX 200 stocks 31 increased, 161 declined, and 8 were unchanged. Sino Gold led advancers in the index shares with a rise of 22.54% after gold prices gained the most since the year 1979.

RBA Injects A$3.015 billion into Market

The Reserve Bank of Australia today injected A$3.015 billion in order to provide additional liquidity in the market and stem mounting market jitters that saw the country''s 90-day interbank bill rate to 7.373% from 7.257% yesterday.

Also the difference the rate banks charge each other for three-month loans and overnight indexed swap rate increased 77.83 basis points from 59.67 basis points yesterday.

Goldman Sachs and Morgan Stanley

Morgan Stanley shares dropped as much as 44% before settling at 26% yesterday, while Goldman Sachs lost more than 35% before closing down 18%. The last two remaining independent brokerage houses are under assault after they took on excessive risks on their balance sheets. Ken Lewis, chief executive of Bank of America after recently agreeing to acquire Merrill Lynch said that Morgan Stanley and Goldman Sachs will find it difficult to survive as independent companies and may be acquired or merged with a banking institution.

Financial brokerage houses are not protected under the federal depository system and operate outside the regulatory regime. The brokers have been taking increasing leverage on their balance sheet to generate outsize profits in the last five years before the mortgage securitization market collapsed.

Credit market losses have since driven Merrill Lynch and Bear Stearns into emergency sales and also recently forced Lehman Brothers into filing a bankruptcy protection.

Gainers & Losers

Sino Gold led gainers in the ASX 200 index shares with a rise of 22.54% followed by increases in St Barbara Ltd. of 20.83%, in Lihir Gold of 15.89%, in Newscrest Mining of 14.54%, and Coeur D''Alen of 12%.

Sino Gold rose after gold for immediate delivery rose 0.6% to US$868.65 an ounce in Sydney after surging 11% yesterday. Silver prices also gained 1.7% to US$12.16 an ounce. Oz Minerals edged up 3.62% as a result.

Great Southern led decliners in the ASX 200 index shares with a fall of 24.69% followed by losses in Macquarie Group of 23.22%, in Babcock & Brown of 17.39%, in Murchison Metals of 16.67%, and Perilya Ltd. of 16.67%.

The troubled investment company Allco Finance tumbled 10.34%.