Australian shares sharply lower after US rate cuts disappoint Wall Street

Australian shares sharply lower after US rate cuts disappoint Wall Street

	Published : Wed, 12 Dec 2007 01:16 By : Agencies Print this Story

SYDNEY (Thomson Financial) - Australian shares were trading sharply lower in early deals Wednesday as investors reacted to

Wall Street's disappointment at the modest interest rate cuts announced by the Federal Reserve.

The Fed cut its federal funds target rate by 25 basis points to 4.25 percent. While the size of the

cut was expected, some investors were hoping for a more aggressive reduction to boost the US economy.

The federal funds target rate is the short-term interest rate at which banks lend to each other overnight within the Federal Reserve system.

The Fed also trimmed its discount rate -- the rate at which it lends money to banks -- by a

quarter percentage point -- disappointing those who were looking for a 50 basis point

'Australian shares can't stand immune if US share markets are plummeting but the fundamentals in our market remain rock solid presenting longer term investors with attractive buying opportunities,' said Craig James, chief equities economist at CommSec.

'Clearly investors in the US were disappointed that the Federal Reserve didn't cut the discount rate by a larger margin but we believe investors will get over this apparent shock.

'Once investors go back to the big picture and look at the state of the US economy even though it has weakened it is by no means a parlous situation as employment is still growing and the manufacturing and services sectors are also growing.'

At 10.50 am (2350 GMT) the S&P/ASX 200 was down 94.9 points or 1.4 percent at 6,585.5

while the All Ordinaries dropped 89.6 points or 1.3 percent to 6,648.8.

In New York the Dow Jones Industrial Average ended down 294.26 points or 2.1 percent to

13,432.77.

James said the Fed obviously believes a quarter-point cut was all that was necessary.

'Investors should take heart in that.'

In its statement, the Federal Open Market Committee said 'incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending.' But the FOMC said that 'some inflation risks remain'.

Index leader BHP Billiton was down 95 Australian cents or 2.2 percent at 43.25 dollars and Rio Tinto dropped 3.16 dollars or 2.2 percent to 143.34 dollars.

Banks were also weaker with National Australia Bank down 42 cents or 1.1 percent at 38.49 dollars and Commonwealth Bank off 77 cents or 1.2 percent at 60.01 dollars.

Investment firms were particularly hard hit with Macquarie Group down 2.16 dollars or 2.6 percent to 80.42 dollars and Babcock & Brown off 52 cents or 1.8 percent at 27.92 dollars.

Television broadcaster Ten Network was off 6.0 cents or 2.1 percent at 2.81 dollars despite reporting strong first-quarter results.

Renewable fuels company, Natural Fuels, was up 0.5 cent or 3.0 percent at 17 cents after saying it had completed the construction of the first phase of its biodiesel plant in Singapore which when fully completed will be the largest of its type in the world.

(1 US dollar = 1.14 Australian dollars)

bruce.hextall@thomson.com

bhx/ms

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