S&P/ASX 200 index closed down 47.7 points, or 1.1%, at 4381.3 hitting 4378.0, lowest level July 22. -- pest/shock

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Date Posted: 14:06:55 08/24/10 Tue
Author: Tuesday August 24th 2010
Subject: S&P/ASX 200 index closed down 47.7 points, or 1.1%, at 4381.3 hitting 4378.0, lowest level July 22.

Australia Shares End Down 1.1% Amid Offshore Weakness
24/08/2010 5:19PM

SYDNEY (Dow Jones)--The Australian share market hit its lowest level in almost five weeks on Tuesday as an uncertain domestic political environment and cautious outlook statements from the Australian earnings season left it vulnerable to weaker offshore equity markets.

The benchmark S&P/ASX 200 index closed down 47.7 points, or 1.1%, at 4381.3 after hitting 4378.0, its lowest level since July 22.

On the charts, the index remained in the grip of a bear flag pattern targeting 4292, according to Dow Jones Newswires technical analysis.

The fall in the Australian share market was in line with Wall Street's recent three-day decline on the back of ongoing concern about the U.S. economy.

Overnight, the S&P 500 hit its lowest closing level in more than five weeks.

"I think it's just a recycling of the double dip (recession scenario)," said RBS Head of Sydney Sales Trading Justin Gallagher. "The economic data is certainly not showing any upward momentum--if anything it's tempering. We're lacking material positive catalysts ahead of U.S. housing, durable goods and GDP data out this week."

Financials, materials and consumer staples led broad-based declines in Australian shares.

Westpac fell 2.9% to A$21.43 after a disappointing trading update yesterday saw Macquarie downgrade the stock to Neutral, while QBE Insurance fell 2.2% to A$16.83 ex-dividend.

Wesfarmers went ex-dividend, falling 3.4% to A$30.63, while Foster's fell 4.3% to A$5.99 as it met full-year earnings expectations, ex-writedowns, but failed to pay a final dividend.

Foster's flagged poor market conditions for beer and wine, although it expressed some hope that internal improvements will drive business performance.

In resources, BHP Billiton fell 1.5% at A$37.54, Fortescue Metals fell 3.0% to A$4.50 and Rio Tinto fell 1.6% to A$71.07.

A report on Canada's Globe & Mail website that Rio "is said to be considering a bid (for Potash Corp. of Saskatchewan) alongside a Chinese player as relations between the two sides strengthen" was eyed by traders but didn't have any significant impact due to a lack of strong sourcing.

"It's only a rumor at this stage," said UBS Head of Sales George Kanaan. "There will be a lot of rumors about Potash for the next little while but I don't think anyone is going to push hard until something gets disclosed."

Cudeco shot up 30% to A$2.22 after Chairman Wayne McCrae released a supportive letter from a Sinosteel unit involved in Cudeco's Rocklands project. McCrae insisted the latest resource estimate "confirmed Rocklands as a world class copper project."

Earnings reports and outlook statements continued to have a mixed impact. Among companies reporting their results on Tuesday, Aristocrat, GPT Group, Sonic Healthcare and Flight Centre shares rallied, while AWE, Seek and Oil Search shares lost ground.

Gallagher said that Australian company earnings have been propped up by government stimulus around the globe, yet with stimulus fading, outlook statements have been cautious.

He added that political uncertainty could make things worse for the local share market, with Australia facing a hung parliament, with the balance of power held by independent lawmakers after Saturday's Federal election left the two major parties without a majority in the House of Representatives.

"The biggest issue continues to be the lack of informative and detailed outlook and the confidence in the outlook statements (of companies reporting earnings) is pretty soggy," said Gallagher. "It's been a pretty disappointing reporting season...political uncertainty could make things worse because sovereign risk still exists. It's the worst case scenario for our market."

But the unclear election result doesn't justify big falls in Australian investment markets as it is unlikely to threaten Australia's favorable longer-term prospects, says AMP's Head of Investment Strategy Shane Oliver.

According to Macquarie equities, the Australian share market is well into cyclical recovery, with valuations still favorable, although the outlook is "very skewed", with resources leading on the back of a strong recovery in commodity prices, while industrials' earnings recovery remains "very moderate with only a minority making real headway".

The broker said Australian equities are undervalued, even after allowing for substantial discounts for lower-than-expected earnings growth and more volatile economic cycles.

-by David Rogers, Dow Jones Newswires: 61-2-8272-4693: david.rogers1@dowjones.com

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=ymqeKfHn7kxfep%2BfvGNf%2Bw%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires

August 24, 2010 03:19 ET (07:19 GMT)

Copyright (c) 2010 Dow Jones & Company, Inc.

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