Traders' wild volatility ride

It's hardly news that volatility has reigned supreme across global equity markets in 2008. But recently the Australian bourse has been particularly volatile.

Trading has seen the benchmark S&P/ASX200 index zig-zagging wildly above and below opening levels.

For any Australian equities index, the action has been more than unusual.

The morning of July 24 for example saw so many S&P/ASX200 directional changes that at first glance it gave the impression of extreme investor indecision.

But market professionals knew there were other dimensions at play.

Macquarie Private Wealth divisional director Lucinda Chan said quarterly options expiry was part of the explanation.

Positions that haven't expired worthless are exercised, closed or rolled to other expiry dates or exercise prices.

But professional traders have recently also been unusually active.

Traders are employed by finance houses to, among other things, boost returns on principal accounts. ``Principal'' means the house's own assets.

Traders' positions are often open and closed - perhaps multiple times - in a single day. And trading is undertaken in such large volumes that profits can be taken as securities move in increments of cents rather than dollars.

Professional traders, many of who retain employment only so long as they reap profit, seek excess returns or so-called ``alpha''.

A principal's stock may be utilised, and indeed finance houses hold such large volumes of top-20 stocks that shorting and stock lending is common.

But often traders use derivatives including options, futures, forwards, exotics and derivative strategies that mimic other derivatives known as synthetics.

Derivatives are derived from underlying securities, which in the case of the equities market may be shares or similar instruments.

In itself, derivatives trading often doesn't move share prices, as many trade on separate exchanges, are over-the-counter or cover disparate markets.

But for derivatives traders to keep positions safe, while supposedly adhering to in-house risk controls, they need to hedge their activities.

That often means buying or selling the principal's underlying holdings.

"There are a lot of participants in the market who are very trading oriented,'' Intersuisse director Howard Elton said. "These are professionals with the large institutional broking houses who are taking positions whether long or short.



"The huge volumes ... these are not the mums and dads having a flutter. And it's also not the major savings institutions, the superannuation funds doing a lot of this.''

The uninitiated might tag such trading activity as false and therefore unrepresentative of the true value of markets and their participant securities.

But the liquidity that it provides is imperative to the effective functioning of major exchanges and markets.

Liquidity simply means an investor or trader can buy and sell securities, at consensus fair prices, ostensibly when they choose.

"A lot of this is intraday trading,'' Mr Elton said. "And most will be brought about by the principal trading of the large broking houses.

"Sometimes it's fine tuning of portfolios.''

To an extent, program trading - where computer-generated orders automatically realign institutional holdings to their benchmarks - is also apparent.
"The better the computer systems, the more trading there's been over the past 10 to 15 years,'' Mr Elton said.

Tolhurst private client adviser Stephen Ellis said professional traders were responsible for a significant proportion of the recent market volatility.

"The market's being driven by traders,'' Mr Ellis said. "Private clients are topping up on top-20 stocks, but we've got traders running the market at the moment.

According to Mr Ellis, volatility is particularly a boon for institutions going short.

But for private clients, who are often longer-term investors, the sometimes violent market action can significantly increase anxiety.

Mr Ellis said funds and individuals alike could also tap considerable leverage, the availability of which has rocketed over the past decade.

"Depending on the fund you could use considerable leverage,'' he said. ``With the capacity to do it in size.''

Information flow - whether paid, cheap or free - has also become increasingly accessible.

"We know of one (quantative) fund that can do enormous size and impact share prices, but the market is made up of a lot of people,'' Mr Ellis said. "If you've got program trading and they are going in the same direction, it can certainly add to volume.

"A story can flow around the world, and you can have global traders jump on a market.''

NAB slumps on debt shock

National Australia Bank will suffer a $600 million blow to its annual net profit, sending its earnings into the first tailspin for four years, after taking a direct financial hit from a portfolio of investments linked to the US subprime housing crisis.

The bank yesterday disclosed it is facing further potential losses of $830 million on a package of $1.2 billion home loan-backed specialist securities against which it has taken a pre-tax charge on its forthcoming results, due out in November.

That is in addition to a $181 million provision the bank made in March on the same investments - taking the total amount set aside for the parcel of sour loan exposures to $1 billion in little more than four months.

The impact on NAB has already gone further than the expected fall in yearly earnings, which could fall well below the $4 billion mark in contrast to last year's record result of $4.38 billion.

Investors yesterday responded by savaging the bank's shares. The stock suffered its biggest one-day fall in more than 20 years, slumping $4.14, or 13.5 per cent, to $26.56.

The only immediate saving grace for NAB's shareholders is the increased bad debt charge will not cut into the final dividend the bank intends to pay for the second half, ending September 30. NAB paid 97c a share at its half year in May and the market has been expecting an increase on the final 95c payment which it declared in the last six months of its 2007 year.

But yesterday's share price decline wiped away all the gains made by the banking sector over the past fortnight, after a recovery which had appeared to indicate that the worst of the twin credit crises might have passed.

However, NAB's revelations, which wiped $7 billion off its market value of $51.9 billion, saw those fears return with a vengeance as the All Ordinaries index plunged 157 points, or 3 per cent, to 5031. The ASX 200, of which NAB is the fourth biggest member, fell 173 points to drop below the psychological 5000 mark, ending at 4970.5.

NAB's woes in the US housing market only emphasised the continuing weakness of the US economy, which continues to drag down Wall Street and, by extension, the Australian sharemarket. The key US indices fell about 2 per cent on Thursday, including the Dow Jones index, which lost more than 280 points.

The NYSE index was not helped by car manufacturer Ford's record quarterly loss of $US8.7 billion and new monthly figures showing that US home sales had fallen to a 10-year low. Those figures underlined comments from NAB's chief executive John Stewart that the bank had been caught out by a "rapid deterioration" in the American housing market, which had seen foreclosures

mount in recent weeks just as loan recoveries by lenders dropped sharply. Mr Stewart warned that worse was to come with 18 million homes waiting to be offloaded - the equivalent of year's backlog of property sales.

The extent of the problem resulted in NAB taking the decision to write off almost all of the value of its 10 collateralised debt obligations (CDOs) now, Mr Stewart said, rather than "drip feed" regular provisions out to the market over the next two to three years.

"We believe it is prudent to take a full provision now based on a worst-case scenario," he added. NAB's complex package of CDOs, which are backed by residential mortgages that were parcelled up and sold off to international investors, are currently only showing losses of 2 per cent, while interest and debt repayments are being maintained.

But the bank's move indicates that the investments could well worth next to nothing in coming months although a longer-term recovery could see NAB recover some of the value in years to come.

Stocks thrashed over credit fears

The Australian share market had its largest one-day fall in six months, closing more than 3% weaker and wiping $38.5 billion from its value, following troubling news from NAB and a weak lead overnight from Wall Street.

The benchmark S&P/ASX200 index finished down 173.6 points, or 3.37%, to 4970.5 after hitting a low of 4939.8 in intra-day trade.

The broader All Ordinaries shed 157.4 points, or 3.03%, to 5031 after reaching a low of 5003.2 in early trade.

It was the biggest one-day fall since January 22, when the All Ords fell 7.3% and the S&P ASX 200 fell 7.1%.

The September share price index futures contract was down 183 points to 4959 on a volume of 36,219 contracts.

NAB shares finished 13.49% down it reported further provisional losses related to its exposure to complex US mortgage-backed debt securities, closing down $4.14 to $26.56 after sinking to an intraday low of $26.22.

The bank said it had made a provision of $830 million on its exposure to a portfolio of collateralised debt obligations, building on a $181 million charge booked in its first half.

More than 38 million NAB shares changed hands today.

CMC Markets senior dealer James Foulsham said it had been a brutal day across the board.

"The NAB news coupled with the fact that the US market was off nearly 300 points has absolutely smashed the local market,'' Mr Foulsham said.

"We've seen a lot of mixed selling of NAB: we've seen people selling out of longs because they are concerned NAB might have a skeleton in the closet and some people were thinking it was an over-reaction and were buying into the stock.

"At this stage, it is a provision, not a write-off.

"But people's concern is that there is worse to come and that the bank could have some substantial losses that they are foreshadowing.

"The other possibility is that this is only the first stage of their provisions and there could be more of this stuff to come.

"It's had a flow-on effect to the other banks.''

The Commonwealth Bank was down $3.14, or 6.77%, to $43.25, ANZ shed $1.70, or 8.74%, to $17.75 and Westpac fell 71 cents, or 3.11%, to $22.09. St George lost $1.04, or 3.51%, to $28.61.

The financial sector lost more than 6% today - ``a huge move'', Mr Foulsham said.

Resources giant BHP Billiton Ltd fell 63 cents to $36.92 while rival and takeover target Rio Tinto lost $1.40 to $113.80 after commodity prices fell overnight.



BHP and energy giant ExxonMobil today said they had given the green light for the $US1.25 billion ($A1.3 billion) Turrum project in the Bass Strait.

In other headlines, Rio Tinto subsidiary Energy Resources of Australia, the world's fourth-largest uranium producer, has reported a strong rise in first-half profit after the uranium price spiked.

This was already factored into ERA's share price, so it fell 55 cents to $22.65.

Newmont Mining, the world's second-largest gold producer, said a strong Australian dollar and high labour costs were putting pressure on the capital estimate of its Boddington project in Western Australia.

Newmont gained 22 cents, or 4.55% to $5.06.

Among other gold producers, Newcrest Mining fell 45 cents to $28.95 and Lihir added 11 cents to $2.94.

The spot gold was trading in Sydney was $US934.10 per fine ounce, up $US7.80 from Thursday's close of $US926.30.

The energy sector was mixed. Woodside dropped 33 cents to $52.21, Santos gained 42 cents to $17.40 and Oil Search rose 25 cents or 4.83% to $5.43.

Among retail stocks, Woolworths fell 31 cents to $25.54 and Coles owner Wesfarmers lost 96 cents to $34.44.

Media stocks were mixed. Consolidated Media Holdings edged 1 cent lower to $3.14, Fairfax fell 17 cents to $2.94 and News Corp was down 40 cents to $15.88 while its non-voting scrip dropped 48 cents to $15.50.

The most traded stock by volume was diamond explorer Flinders Mines Ltd with 56.55 million shares worth $10.18 million changing hands.

Its shares closed 3 cents, or 18.18%, higher at 19.5 cents.

Preliminary national turnover was 1.4 billion shares worth $7.98 billion, with 357 stocks up, 722 down and 304 unchanged.

AAP

NAB shares slump on writedowns

National Australia Bank shares experienced their biggest drop in 21 years today, wiping $7 billion off the stock's value, after the bank shocked financial markets with additional losses.

NAB this morning said it had to set aside another $830 million for credit market losses, citing the rapid deterioration in US real estate markets.

The provisions come on top of $181 million flagged in March, and go towards covering $1.2 billion in collateralised debt obligations (CDOs) backing American real estate assets, the type of securities whose value has plunged in the wake of the subprime lending crisis.

Shares in NAB plunged $4.14, or 13.5%, to close at $26.56.

Other banking shares were also savaged, with ANZ shedding 8.7% to $17.75, CBA losing 6.8% to $43.25 and Macquarie down 5.5% to $50.38.

The ASX 200's financial sub index fell as much as 6.2%, it's worst one-day slide in six months.

The increased provisioning brings the level of coverage to affected portfolio to nearly 90%, the bank said. The bank said its dividend will be unaffected by the provision.

''Recent developments point to (a) much higher probability of loss,'' NAB said in a statement.

The bank said the asset backed CDOs contained US residential mortgages held in international conduit facilities.

''This provision reflects the unprecedented conditions in global credit markets and, in particular, the rapid deterioration in the United States housing market,'' NAB chief executive John Stewart said in a statement.

''The continued deterioration in the US housing market has been further highlighted in recent weeks with foreclosures mounting and recovery rates from security in some categories falling to less than half of the loan value,'' Mr Stewart said.

In the US overnight, the National Association of Realtors said sales of previously owned US homes fell in June to the lowest level in a decade as tumbling real-estate prices and consumer confidence signalled no end in sight to a housing recession now in its third year.

Resales dropped 2.6% to a lower-than-forecast 4.86 million annual rate from a 4.99 million pace the prior month, the NAR said. The median home price dropped 6.1% from June 2007.

NAB said current losses of the assets underlying the CDOs average 2% of the total portfolio. ''Our detailed analysis and recent default activity indicates the portfolio will continue to deteriorate,'' Mr Stewart said.



In a media briefing, he said the bank was working under a worst-case scenario in evaluating its losses. The bank had ''no appetite to drip feed increasing losses from the (CDO) portfolio over the next few years while the crisis plays out,'' he said.

The credit crunch, which initially only affected so-called subprime mortgages, has now spread to much of the US real estate market.

The continuing weakness has dashed Mr Stewart's hope that the global credit crisis reached its lowest point when the US Federal Reserve helped facilitate the sale of debt-stricken US investment bank Bear Stearns in March.

"Clearly the market believes there is a lot of bad news to come," Mr Stewart said.

NAB said the US government's action to shore up mortgage lenders Fannie Mae and Freddie Mac may "offer partial recovery potential."

Today's announcement "is a direct result of the meltdown in the US housing market," Mr Stewart said. "It's hard to say to people that buying AAA-rated assets with a tiny chance of default is reckless. It was not."

"If we were looking at the same circumstances again, we would probably make that decision," Mr Stewart said. "If we wouldn't invest in AAA assets then quite frankly we wouldn't invest in any Australian companies."

However, Mr Stewart said the worst case scenario for the US housing market might not be too far away.

Although the provisions announced by NAB today are related to 10 asset-backed CDOs, the banks admission calls into question it's move into the US banking market with the 2007 acquisition of Great Western Bank.

NAB is "basically clearing the decks," said Southern Cross Securities banking analyst TS Lim. ''Basically it proves they went in at the wrong time in the US,'' he said, citing the 2007 move.

"Only a portion of (Great Western's) loans are actually agribusiness," Mr Lim said but wouldn't rule out future losses connected to it because the states it's active in, like Arizona, are seeing lower home prices.

"So they must be affected in some way."

Also because Great Western is in the US, and problems with CDOs are linked to the US, there is a feeling things will get tougher for NAB over there, he said.

"It's different for the other three majors because they don't have exposure in the US."

Looking ahead, Mr Lim said NAB could suffer more writedowns from the UK, where the mortgage market has been slammed by falling real estate prices.

Today's announcement probably explains NAB's decision to abandon plans to buy the local arm of ABN Amro earlier this week, said Austock banking analyst John Buonaccorsi.

''They knew if they had to write off a billion dollars, they don't have money to buy things,'' he said.

With NAB's losses tied so closely to the US housing market weakness, a recovery in that market will help the bank's balance sheet.

"Maybe if the housing market recovers quickly there will be write backs but you wouldn't assume that from what we know now," said Mr Buonaccorsi.

NAB's disclosure spurred rivals to offer assurances to the market about their exposure to CDOs.

Westpac said there had been no impact on earnings from its portfolio of collateralised debt obligations.

Commonwealth Bank of Australia also said it had no direct exposure to the subprime crisis and no material exposure to the local stock lending sector.

Battered banks drag shares down

The share market plunged more than 2% today as concerns about further fallout from credit markets dented banks such as NAB and Commonwealth Bank.

At the close, the benchmark S&P/ASX200 index was 105.3 points, or 2.1% lower at 4815.7, its lowest close in nearly 2.5 years. The decline equated to another more than $20 billion being wiped off the market's value and brought the losses in this year to 24%.

The broader All Ordinaries dropped 97.8 points, or 2%, to 4910.1.

On the Sydney Futures Exchange, the September share price index contract was 126 points lower at 4811, on a volume of 28,216 contracts. On the currency market, the Australian dollar rose to a fresh 25-year high of 97.57 US cents during the day and was last trading at 97.52 US cents.

"The market has been absolutely savaged today,'' CMC markets senior dealer Dominic Vaughan said. "The financial stocks have been hammered badly, that negativity out of the US on the financial sector, and for that matter global financials, is just infecting our market again today.

"There is still a belief that any measures done by the US government or the US Federal Reserve may not be enough.''

ANZ dropped 68 cents, or 3.8%, to $17.12, National Australia Bank fell $1.11, or 4.2%, to $25.36, Westpac shed 66 cents, or 3.4%, to $18.68 and Commonwealth Bank lost $1.41, or 3.5%, to $38.75.

Westpac was the last of the big four banks to raise its standard variable mortgage rate independently of the Reserve Bank of Australia, by 14 basis points to 9.61%.

The retailers were weaker, with Woolworths falling 93 cents to $23.46, Wesfarmers shedding $1.40 to $31.00, David Jones giving up 16 cents to $2.70 and Harvey Norman retreating two cents to $3.00.

Fantastic Holdings picked up nine cents to $2.15 after the group acquired most of Le Cornu Furniture for $1.3 million with a view to expand the brand into other states.

Centro Properties Group gained 1.5 cents to 24.5 cents after the company agreed to sell the majority of the assets in the Centro America Fund (CAF) for $US714 million ($735 million), equating to a 10% discount to previous book value.

Funds manager Allco Finance Group added four cents to 41.5 cents after the company refinanced its senior debt facilities with the company's standing banking syndicate.

Mirrabooka Investments put on three cents to $1.70 despite posting a fall in annual operating profit to $8.3 million.

The media sector was mixed, with Consolidated Media Holdings putting on two cents to $2.96, Fairfax shedding seven cents to $2.64, News Corp losing 49 cents to $14.62 and its non-voting shares giving up 50 cents to $14.40.

Fertiliser and explosives maker Incitec Pivot gained $1.78 to $179.78 after the company said a troubled ammonium phosphate plant had returned to normal operations, but a temporary closure for repairs had cost the company an estimated $49 million.

The share market got off to a poor start following a weak lead from Wall Street overnight, with the Dow Jones Industrial Average losing 45.35 points, or 0.4%, to 11,055.19, dragged down by financial stocks.

Billions lost in US fallout

MORE than $25 billion was carved off the sharemarket yesterday and the dollar climbed to within a whisker of parity with the greenback as the fallout from the US mortgage disaster deepened.

Australian bank shares plunged to their lowest levels since the terrorist attacks of September 11, 2001, as investors woke to the realisation that the US Government's bail-out of the mortgage giants Fannie Mae and Freddie Mac had failed to quell panic.

In the US, the banking turmoil is spilling from Wall Street to Main Street, in what the billionaire investor George Soros has dubbed "the most serious financial crisis of our lifetime". Customers queued to withdraw money from branches of the crippled Californian lender IndyMac and two regional banks were forced to assure depositors they were sound.

Australian shares plunged to a two-year low amid fears of slower growth. Last night, the dollar burst through US98 cents due to the weakening US economy.

But it is a grim time for investors in blue-chip banking stocks. The National Australia Bank's share price crashed to $25.36, its lowest since 2001. ANZ fell 68 cents to almost a five-year low of $17.12 - almost a half its market value in October. Westpac also slid 66 cents to a three-year low of $18.68 and the Commonwealth fell to $38.75.

The Reserve Bank singled out weaker superannuation returns as partly responsible for putting the brakes on the broader economy, minutes of its latest board meeting revealed. Consumer demand was falling amid rising mortgages and petrol prices, and fears about retirement savings.

Adding to the pain, Westpac raised mortgage rates 0.14 percentage points yesterday - the last of the major banks to do so in the past fortnight.

Hugh Giddy, a fund manager at Cannae Capital Partners, said the banks were falling because investors were jittery about the US. "The more trouble there is overseas the more trouble there is domestically. So far the US is already in recession and Australia is weakening."

The prospects of a recession in Australia were already reflected in the share prices of companies such as discretionary retailers. Harvey Norman's market value had more than halved over the past six months.

"The fact is that we are getting a slowdown in credit growth and that normally means a slowdown in economic growth," he said.

"If we get an economic slowdown, 2009 is going to be a dreadful year," Mr Giddy said.

The one bright spot for borrowers is the reduced chance of official rate rises.

"The case for a rate cut is stronger than that for another hike," Macquarie's interest rate strategist, Rory Robertson, said.

The managing director of Wallace Funds Management, Richard Wallace, said the US crisis was unlikely to slow Chinese growth, which would cushion the Australian economy.

"We are not going to be as catastrophic as the US and our currency is telling me that … but the sharemarket is telling you that people are concerned," he said.

Uncertainty about the US financial system is fuelling the rise of the dollar and the euro.

The benchmark S&P/ASX200 index lost 105.3 points yesterday, or 2.1 per cent to close at 4815.7, its lowest in nearly 2½ years.

Resources drive market higher

The share market rose 0.9% on Friday as resource stocks, led by gold and oil companies, surged on higher commodity prices and the banks pared early losses.

The benchmark S&P/ASX200 index gained 42.5 points to 4979.9, while the broader All Ordinaries added 47.3 points, or 0.9%, to 5067.8.

The September share price index futures contract rose 27 points to 4973 on a total volume of 20,301 contracts.

Macquarie Equities Brisbane adviser Helen Spencer said resource stocks were today's big winners.

"Oil and gold were up strongly overnight, so we've had very strong performances from stocks like Woodside and Newcrest Mining,'' Ms Spencer said.

Local banks fell in early trade after US mortgage finance companies Fannie Mae and Freddie Mac fell sharply on Wall Street overnight amid continued doubts about their access to financing.

The banks recovered somewhat towards the end of the session on reports the US government may bail out the troubled mortgage giants.

"The banks have finished well off their lows today, so there's definitely some buyers trying to get them on the dips,'' Ms Jarvis said.

BHP Billiton gained $1.55, or 4%, to $40.35 and Rio Tinto found $4.40, or 3.6%, to $126.00.

Woodside surged $2.70, or 4.7%, to $60.60 and Santos grew by 49 cents to $18.95 as light sweet crude for August delivery rose $US5.60 to $US141.65 a barrel on the New York Mercantile Exchange.

The spot price of gold was $US942.45, up $US13.35 on last night's Sydney close.

Newcrest Mining jumped $1.64, or 5.5%, to $31.47, Newmont firmed 18 cents to $5.12 and Lihir Gold advanced 19 cents, or 6.3%, to $3.23.

Bauxite miner Alumina was one of the day's biggest gainers, finding 33 cents, or 7.8%, to $4.56 on a soaring Aluminium price and forecasts the Varanus Island gas explosion would hurt it less than expected.

National Australia Bank dropped 16 cents to $27.45 after warning it could have to book more writedowns linked to investments in risky collaterilised debt obligations. NAB also announced it was in talks to buy investment bank ABN Amro in Australia and New Zealand.

Commonwealth Bank of Australia jacked up its variable home loan rate another 14 basis points and its shares fell 23 cents to $40.32.

ANZ lost 42 cents to $17.95, Westpac lost six cents to $19.01 and St George lost five cents to $25.44.

Bargain hunters boost stocks

The Australian share market closed higher today as investors snapped up stocks that now look cheap after being beaten down by higher oil prices, the global credit crunch and fears of economic slowdown.

The major banks and most stocks in the financial services sector made decent gains.

The benchmark S&P/ASX200 index gained 79 points, or 1.6%, to 5011.9, while the broader All Ordinaries added 67 points, or 1.33%, to 5089.4.

The September share price index futures contract was up 53 points to 5014 on a total volume of 25,584 contracts, according to preliminary calculations.

Austock senior client adviser Michael Heffernan said the market was "a little more spritely'' today after a positive lead from the US overnight.

"The banks are performing exceedingly well, and stocks that have been belted down are staging a bit of a resurgence today,'' Mr Heffernan said.

He said there was no question that stocks were looking cheap.

"The banks now have P/E (price to earnings) ratios and dividend yields almost the same - that's got to be the most compelling attraction of the banks since the the early 1990s.''

Nonetheless, volatility remained the byword for the market and today's happiness could be followed by gloom tomorrow.

Among the major banks, NAB gained $1.25 to $27.60, ANZ put on 20 cents to $18.80, Commonwealth Bank strengthened 76 cents to $41.49 and Westpac firmed 17 cents to $19.69.

Elsewhere in the financial services sector, Insurance Australia Group lost 1 cent to $3.66 as it slashed its final dividend and said it would wind back its British operations.

AMP was up 11 cents to $6.68 and Axa Asia Pacific rose 21 cents to $4.75.

In the resources sector, global miner BHP Billiton gained 48 cents to $39.98 but Rio Tinto fell 30 cents to $123.15.

Oil and gas producer Woodside Petroleum was 55 cents richer at $59.22 and Santos fell 10 cents to $18.70.

AGL Energy jumped 52 cents to $14.32 after it acquired a 9.99% stake in Torrens Energy and entered into an alliance with the geothermal exploration company to commercialise geothermal projects.

On Wall Street overnight, the Dow Jones Industrial Average jumped 152.25 points to 11,384.21.

In the gold sector, Newmont dipped 7 cents to $5.01, Lihir was steady at $3.02 and Newcrest ascended $1.91 to $29.55.

The price of gold in Sydney at 4.23pm was $US922.25 per fine ounce, down $US6.05 on yesterday's close of $US928.30.



Telco Telstra was up 17 cents at $4.45 and Optus-owner Singapore Telecommunications was up 4 cents at $2.72.

In the retail sector, Wesfarmers, which owns Coles, improved 48 cents to $34.71, and Woolworths was 71 cents richer at $25.11.

Among media stocks, News Corp was 53 cents heavier at $15.87, and its non-voting stock added 53 cents to $15.61.

Consolidated Media nudged up 1 cent to $3.20 and Fairfax rose 8 cents to $2.93.

Among other stocks, grocery wholesaler Metcash was off 2 cents at $3.83 after the competition watchdog said it had some preliminary concerns about Metcash's proposal to buy the Symbion pharmacy distribution business from Primary Health Care and enter into a logistics joint-venture with Sigma Pharmaceuticals.

Primary fell 32 cents to $4.50 and Sigma lost 2 cents to $1.03.

Property trust GPT Group lost 14 cents to $1.73 as it said finance costs tied to the changes in its credit ratings had been accounted for in the downgraded underlying guidance that it issued earlier this week.

Engineering service provider Downer EDI was up 15 cents at $6.20 after winning more than $800 million of contracts over recent months.

Theme park and cinema operator Village Roadshow hovered at $2.20 after it expanded its footprint in the US, taking control of a water park in Phoenix, Arizona.

The top-traded stock by volume was gemstone producer Cluff Resources, with 82.26 million shares worth $1.93 million changing hands. Cluff was 0.3 cents higher at 2.4 cents.

Preliminary national turnover was 1.57 billion shares worth $6.08 billion, with 538 stocks up, 615 stocks down and 324 unchanged.

Shares drop on slowdown fears

The Australian share market closed lower today as investors continued to fret over an economic slowdown and were spooked by a profit downgrade from property trust GPT Group.

The benchmark S&P/ASX200 index fell 79.6 points, or 1.57%, to 5002.5, while the broader All Ordinaries dropped 78.3 points, or 1.51%, to 5091.7.

Ord Minnett private client adviser Jon Hancock said stocks in resources, asset management, property and infrastructure led the market down.

"It's hard to find anywhere where there was a gain,'' Mr Hancock said.

Mr Hancock said the market fell for a variety of reasons, including no lead from US markets because they were closed for a public holiday on Friday, and an ANZ Banking Group monthly survey showing that the total number of job advertisements had fallen.

"There's still an overall sentiment of a banking crisis and global slowdown which is weighing heavily on the market, and it's likely to continue for some time,'' Mr Hancock said.

Property trust GPT Group plunged 36 cents, or 14.63%, to $2.10.

It cut full-year operating income guidance by 27% as the credit crisis forced the company to postone asset sales.

Elsewhere in the property sector, Stockland lost 35 cents to $5.17.

In the resources sector, global miner BHP Billiton fell 95 cents to $39.75 as it started first production from the $1.16 billion Neptune oil operation in the Gulf of Mexico. Rio Tinto lost $2.45 to $123.25.

Fox Resources shed 5 cents to 75 cents as it was forced to wind down underground mining at its Radio Hill operation in Western Australia and defer a key growth nickel project after a drop in commodity prices.

Fortescue Metals fell 4.1%, or 40 cents, to $9.36.

Oil and gas producer Woodside Petroleum fell $1.65 to $60.10 and Santos sagged 55 cents to $19.40.

Adelaide Energy nudged up 1 cent to 11.5 cents after it bought the Katnook gas fields and processing plant at the Otway Basin in South Australia from Origin Energy Resources and SAGASCO South East.

US markets were closed on Friday for the July 4 Independence Day public holiday.

In Britain, the FTSE 100 shed 63.8 points, or 1.16%, to 5412.8 as banking stocks slipped and oil companies tracked softer crude prices.

In the gold sector, Newmont lost 1 cent to $5.16, Newcrest was down $1.66 to $28.32 and Lihir weakened 8 cents to $3.06.

At 4.35pm, the price of gold in Sydney was $US923.65 per fine ounce, down $US10.65 on Friday's close of $US934.30.



The big four banks were all lower, led by the Commonwealth Bank, which fell 2.1%, or 88 cents, to $41.45, NAB fell 1.7%, or 47 cents, to $27.07, ANZ fell 1.64%, or 32 cents, to $19.20 and Westpac fell 1.5%, or 30 cents, to $20.00.

Elsewhere in the financial services sector, Bell Financial Group surged 19.5 cents to $1.12 as it agreed to buy Southern Cross Equities for an expected $150 million in cash and scrip to create Australia's largest independent broker.

Challenger Financial Services added 11 cents to $2.16 as it said it would buy back up to 10% of its issued capital.

On the retail side, Woolworths closed 2.7%, or 63 cents, higher, at $24.03, but Wesfarmers dipped 0.35%, or 12 cents, to $34.25. Shopping centre owner Westfield closed 0.8% higher, adding 13 cents to $16.23.

Telco Telstra eased 4 cents to $4.29 and Optus-owner Singapore Telecommunications was steady at $2.66.

Among media stocks, News Corp fell 8 cents to $15.60, and its non-voting scrip stepped back 16 cents to $15.33.

Consolidated Media was off 18 cents at $3.17 and Fairfax lost 8 cents to $2.79.

The top-traded stock by volume was gemstone producer Cluff Resources, with 116.55 million shares worth $2.66 million changing hands. Cluff was steady at 2.2 cents.

Preliminary national turnover was 1.32 billion shares worth $4.02 billion, with 694 stocks down, 421 up and 330 unchanged.

The September share price index futures contract was down 66 points to 5008 on a volume of 16,040 contracts, according to preliminary calculations.

Shares end losing streak

The Australian share market has broken a six-trading-day losing streak to end today well over the 5000-point barrier as bargain hunters rejoined the banks and resources sectors after Wall Street bounced overnight.

The bears watched from the sidelines as the benchmark S&P/PASX200 index edged back above the psychological 5000-point level.

The S&P/ASX200 index gained 83.8 points, or 1.68%, to 5082.1 while the broader All Ordinaries added 76 points, or 1.49%, to 5170.

The September share price index futures contract rose 89 points to 5089 on a total volume of 23,131 contracts.

CMC Markets senior dealer Dominic Vaughan said resources and energy stocks recovered lost ground, while financial stocks also found support.

"Traders saw the opportunity to re-enter energy and resource sectors after yesterday's heavy losses with BHP Billiton, Rio Tinto and Fortescue Metals,'' Mr Vaughan said.

Mr Vaughan said BHP attracted a lot of attention due to stronger iron-ore price agreements.

BHP Billiton advanced 88 cents, or 2.21%, to $40.70 and Rio Tinto firmed $3.75, or 3.08%, to $125.70.

Both stocks fell more than 7% yesterday.

In other mining news, iron ore miner Murchison Metals said it could not explain unusual trading in its shares over the past week.

Murchison's share price has been volatile of late, sinking 13.24% on June 30 to $2.95 from $3.40 the previous day, then rising 6.78% to $3.15 on July 1.

Murchison said it continued to work on its proposed merger with fellow iron ore miner Midwest Corporation. Murchison shares closed up 4 cents at $3.00.

Mr Vaughan said banks were in focus again, but for the "right reasons'' this time.

"Bank stocks climbed for the second consecutive day as investors bought into the financial sector on perceived value,'' Mr Vaughan said.

The Commonwealth Bank was up 98 cents to $42.33, NAB was up $1.06 to $27.54 and ANZ rose 81 cents to $19.52 and Westpac added 61 cents to $20.30.

St George was up 77 cents to $26.77 after it increaased its standard variable home loan rate by 0.2 percentage points to 9.67%.

Australia's fifth-largest bank attributed the rise to the continuing high cost of the funds it sources.

Babcock & Brown was up 32 cents to $7.28 and Macquarie Group advanced $1.57 to $48.63.

Meanwhile, Insurance Australia Group could soon announce write-downs from its British operations of up to $200 million, which may force it to cut its final dividend.



IAG shares fell 4 cents at $3.69 on the speculation but other insurers gained.

Suncorp-Metway rose 15 cents to $12.65, while QBE Insurance Group gained 79 cents at $22.48.

US equity markets were mixed overnight in the lead-up to the July 4 long weekend.

The Dow Jones industrial average and the S&P500 initially fell but managed to finish higher on better-than-expected jobs data and record oil prices that boosted energy stocks.

Oil rose to a record high on signs of strong demand from China, with crude oil for August delivery climbing to more than $US145 per barrel in New York overnight.

Local energy stocks were mixed, with Woodside dropping $1.35, or more than 2%, to $61.75.

Santos gained 14 cents to $19.95 and Oil Search added 2 cents to $6.05.

Origin Energy, Australia's second-largest power retailer, formally rejected a $13.7 billion takeover bid from BG Group, and its shares ended 13 cents cheaper at $16.15.

Babcock & Brown Power surged 12 cents, or 18.18%, to 78 cents after selling one of its power stations to Origin Energy to pay down debt.

At 4.27pm the spot price of gold was $US934.45, down $US10.45 from last night's Sydney close of $US944.90.

The precious metal producers were all lower, with Newcrest dipping 2 cents to $29.98, while Newmont lost 3 cents to $5.17 and Lihir fell 8 cents to $3.14.

Beadell Resources has abandoned plans to acquire Newcrest Mining's Cracow gold project in Queensland after an equity raising to fund the purchase was unsuccessful due to tough market conditions.

Beadell's shares were hammered on the news, sinking 12 cents, or 30%, to 28 cents.

The retailers found support, with Woolworths picking up 30 cents to $23.40, David Jones adding 14 cents to $3.00 and Harvey Norman gaining 11 cents to $3.11.

Takeover target Just Group jumped 5.52% or 16 cents to $3.06 after it said it would not disclose more on its fiscal 2009 earnings outlook to its predator, Solomon Lew's Premier Investments.

Qantas gained 11 cents to $3.25, while rival Virgin Blue Holdings was up 1.5 cents to 49.5 cents after it announced its offshoot V Australia would add an extra service, between Brisbane and Los Angeles, from next year.

The top-traded stock by volume was Cluff Resources, with 79.5 million shares changing hands worth $1.62 million.

Preliminary national turnover was 1.37 billion shares worth $5.30 billion, with 669 stocks down, 491 up and 310 unchanged.

AAP

Index tumbles through 5000 barrier

The Australian share market closed at its lowest point in nearly two years today as big mining stocks fell and the rising oil price fanned fears of an economic slowdown.

The decline wiped $28.7 billion off the value of the broader market.

The benchmark S&P/ASX200 index had lost 96.5 points, or 1.89%, to 4998.3.

The index closed under 5000 points for the first time since September 2006, when it ended at 4983.2.

"There's blood on the floor and on the walls,'' Austock senior client adviser Michael Heffernan said. "Resources stocks were carved up mercilessly.''

The S&P/ASX200 also recorded its biggest one-day fall since June 12, when the index lost 2.3%.

The broader All Ordinaries fell 117.6 points, or 2.26%, to 5094.0, its lowest close since September 2006, when it ended at 4948.4

The S&P/ASX200 touched an intraday low of 4969.1 while the All Ords went as low as 5069.4.

The September share price index futures contract had shed 94 points to 5000 on a total volume of 27,838 contracts, according to preliminary calculations.

Mr Heffernan said the share market fall would have been more severe if it were not for a positive performance from the major banks.

He said coal stocks, which had enjoyed a stellar run, had suffered from a drop in the spot price of coal and profit-taking by investors.

In the resources sector, BHP Billiton lost $3.07, or 7.16%, to $39.82, and Rio Tinto dumped $10.36, or 7.83%, to $121.95.

MacArthur Coal fell $1.26 to $15.15, Gloucester Coal retreated $1.58 to $10.60, and Centennial Coal lost 78 cents at $4.99.

But among the major banks, NAB rose 46 cents to $26.48, Commonwealth Bank added $1.14 to $41.35, ANZ was up 41 cents at $18.71, and Westpac gained 39 cents to $19.69.

On Wall Street overnight, the Dow Jones industrial average tumbled 166.75 points, or 1.46%, to 11,215.51.

US stocks were pummelled on concerns that record high oil prices would take a toll on the US economy and hurt company profits.

The US market was also spooked by a report from broker Merrill Lynch warning that it was "not impossible'' that vehicle manufacturer General Motors could fall into bankruptcy.

In the local gold sector, Newcrest fell $1.01 to $30.00 after closing out its gold hedge book at a cost of $1.67 billion.

Newmont was off 40 cents at $5.20, and Lihir lost 10 cents at $3.22.

Oxiana weakened 11 cents to $2.23 after saying it would sell up to 25% of its Martabe gold project in Sumatra to PT Antam.

The price of gold in Sydney at 4.26pm was $US942.80 per fine ounce, up $US1.35 on yesterday's close of $US941.45.

Among media stocks, Ten Network was up 8.5 cents to $1.44 on its plan to buy back 10% of its issued stock over the next years to boost its share price.

News Corp dipped 10 cents to $15.40, and its non-voting stock fell 13 cents to $15.13.

Consolidated Media eased 2 cents to $3.17, and Fairfax was off 6 cents to $2.70.

In the retail sector, Wesfarmers, which owns Coles, fell $1.64 to $32.90 after it said chairman Trevor Eastwood would step down in November.

Woolworths lost 25 cents to $23.10.

Among the telcos, Telstra put on 7 cents at $4.28, and Optus-owner Singapore Telecommunications lost 3 cents at $2.69.

Among other stocks, forestry company Gunns added 2cents to $2.40 after it said it was negotiating terms with a banking syndicate to finance its $2 billion pulp mill at Bell Bay in Tasmania.

The top-traded stock by volume was gold miner Oxiana, with 60.4 million shares worth $136.97 million changing hands.

Preliminary national turnover was 1.67 billion shares worth $7.41 billion, with 890 stocks down, 346 up and 277 unchanged.