Australia Guarantees Deposits, Financials Rise

123jump.com Staff
13 Oct, 2008
New York City

Stocks in Australia rose after the government extended deposit guaratees to all bank deposits. The unprecedented move helped lower interbank loan rates and lifte stocks. European government plan to offer 1.16 trillion euros to resuce banks also weighed on the market. Oil and metals prices gained.

[R]3:00AM New York, 7:00PM Sydney- Australia guarantees all bank deposits.[/R]

Australia index surged after the government offered bank deposit guarantees and European government agreed on a common framework for a bailout plan. After the close France, Germany, Spain, Holland and Austria outlined details of the 1.16 trillion bank bailout plan. Germany and France set up funds to take direct stakes in the companies.

The Australian government move lowered the interbank loan rates.

Market Sentiment

In Sydney trading ASX 200 rose 5.5% or 220 to 4,180.70.

Of the ASX 200 index stocks 152 increased, 39 declined, and 9 were unchanged. Sundance Resources led advancers in the index shares with a rise of 29.21% followed by Babcock & Brown rising 27.23%.

Australia Guarantees Deposits

The Canberra Times reported on its Web site today that Australia''s Prime Minister Kevin Rudd has announced that the Federal Government is guaranteeing all deposits in Australian banks, building societies, including credit unions for the next three years, effective today.

Rudd announced that the deposit guarantee will cover all term wholesale funding by Australian banks and deposit-taking financial institutions operating in international credit markets and have no cap on the size of the guarantee.

The extraordinary intervention by the Australian government follows 8% drop in benchmark index in Friday’s trading and warning from the International Monetary Fund that the global financial system remains fragile.

The government will levy the financial institutions to cover the cost of insurance at a rate that will be determined by the Treasury and the banks and financial institutions.

Prime Minister Rudd announced that the government will buy additional A$4 billion in residential mortgage backed securities after committing A$4 billion to home lending to ensure that the mortgage market have sufficient liquidity.

EU Agrees on Bank Crisis Rescue Plan

After a tumultuous week of stock market trading followed by hectic meetings among financial leaders in Washington and European political leaders in Paris the details of broad framework of financial rescue plan emerged. The common framework among fifteen nations using euro focused on the purchase of troubled loans and take selective direct stakes in the banks.

However, UK limited its action to taking direct stake in banks and encouraged other well capitalized banks to increase its bank reserves.

The U.K., Germany, Spain and Italy are expected to release details of their plan later in the day.

Gainers & Losers

Sundance Resources led advancers in the ASX 200 index shares with a rise of 29.21% followed by increases in Babcock & Brown of 27.23%, in Panaust Ltd. of 25%, in Centro Retail Group of 23.53%, and Queensland Gas of 20.85%.

Financial stocks rose after the government announced that it will guarantee all deposits irrespective of size and the Reserve Bank of Australia pumped A$2.85 billion into the money market.

Australia & New Zealand Bank soared 13.07%.

Property stocks also increased as borrowing costs declined. Valad Property gained 14.46% and Abacas Property edged up 13.87%.

Nexus Energy led decliners in the ASX 200 index shares with a fall of 15.31% followed by losses in Roc Oil Energy of 9.76%, in Arrow Energy Ltd. of 8.85%, in GPT Group of 7.56%, in Alumina Ltd. of 7.26%.

Commodity stocks slipped. Macarthur Coal dipped 3.10% and Lihir Gold plunged 2.81%.