Australia Dips 2%, Weak Commodities

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

Australian stocks closed lower on Monday after markets in Asia and commodities prices fell. The benchmark index dropped 2% ahead of the closely watched vote on the U.S. House floor for the emergency financial package. Separately, RBA injected additional liquidity to money markets.

[R]3:00AM New York, 7:00PM Sydney- Reserve Bank of Australia injects A$2.72 billion in money market.[/R]

Stocks in Australia plummeted led by commodity stocks despite news that the U.S. Congress has agreed in principle to a US$700 billion rescue plan of troubled financial assets.

Market Sentiment

In Sydney trading ASX 200 dipped 1.99% or 97.4 to 4,807.40.

Of the 200 ASX 200 stocks 17 rose, 130 declined, and 23 were unchanged. Centro Retail Group led advancers in the index shares with a rise of 11.54%.

RBA Injects A$2.72 billion

The Reserve Bank of Australia reported on its Web site today that it has pumped in A$2.72 billion in the money market and improve liquidity.

U.S. Congress Agrees on Rescue Plan

The U.S. House of Committee on Financial Services reported on its Web site that the U.S. Congress has agreed on a $700 billion package to bailout banks and financial institutions and will remove the illiquid assets from the balance sheet of these companies.

The 106-page bill follows extensive and intense negotiations that limited the authority of the U.S. Treasury Office and put provisions to limit executive pays at institutions that participate in the plan and provide for the government to take a stake in the future gains in the companies that may benefit from the plan.

Initially the U.S. Government will get $250 billion immediately to start buying the distressed assets from troubled financial institutions, while another $100 billion will be used at the discretion of the President.

However the final $300 billion will released only after approval by Congress next year. The bill is expected to be put to a vote in the House of Representatives today, while the Senate is expected to schedule a vote on Wednesday.

Separately the U.K. Treasury reported today that the UK government seized Bradford & Bingley and sold its branch network to Abbey National controlled by Banco Santander for £612 million.

Similarly, the governments of Benelux nations announced that they have agreed that the Belgium will invest 4.7 billion euros in Fortis Bank NV/SA for exchange of 49% equity stake, while the Netherlands will invest 4 billion euros in Fortis Bank Nederland in exchange of 49% stake and Luxembourg will pump 2.5 billion euros in Fortis Banque Luxembourg SA in exchange of 49% equity stake.

As a result of the interventions, Fortis now has core equity of 30 billion euros, which is 9.5 million euros more than the target and Tier 1 ratio above 9% and total capital ratio of 13%.

Maurice Lippens has also decided to step down from the company''s board of directors and a new Chairman will be recruited from outside the company after consultations with the Belgian government.

Gainers & Losers

Centro Retail Group led advancers in the ASX 200 index shares with a rise of 11.54% followed by rises in Felix Resources of 5.56%, in Corp. Express Australia of 4.08%, in Tower Australia of 4.04%, and Lion Nathan Ltd of 3.41%.

Incitec Pivot Ltd led decliners in the ASX 200 index shares with a fall of 12.07% followed by losses in Straits Resources Ltd. of 9.70%, in Boart Longyear of 8.11%, in Timbercorp Ltd of 7.87% and GPT Group of 7.54%.

Other commodity stocks also fell as metal prices declined. Beach Petroleum shed 7.18%, Murchison Metals fell 7.01%, Riversdale Mining slid 6.80%, and Fortescue Metals shed 6.35%.