Australian S&P/ASX Falls to 2-Year Low on Credit Market Concern

By Shani Raja

July 10 (Bloomberg) -- The S&P/ASX 200 Index fell to its lowest in almost two years on concern financial losses will widen after U.S. mortgage-finance company Fannie Mae's borrowing costs surged on speculation it won't be able to fund its business.

Australia & New Zealand Banking Group Ltd., the country's third-largest lender, slumped the most in almost two weeks, while the nation's largest, National Australia Bank Ltd., posted its biggest drop since June 27.

The benchmark lost 84.60 points, or 1.7 percent, to 4,927.30 at 11:15 a.m. in Sydney, its lowest since July 19, 2006.

The S&P/ASX 200 has tumbled 28 percent since reaching a high on Nov. 1, 2007, on concern over the extent of U.S. subprime- related losses and consequent tightening of global credit markets.

``The markets are in a negative mindset,'' said Prasad Patkar, who helps manage about $1.8 billion at Platypus Asset Management in Sydney. ``Our banks are fundamentally solid, but that doesn't mean they won't go down further because they get dragged down with the rest of what's going on in the world.''

U.S. financial stocks had their biggest decline in six years yesterday after Fannie Mae paid a record yield over benchmark rates on $3 billion of two-year notes, fueling concern it doesn't have enough capital to weather the biggest housing slump since the Great Depression. The decline sent Standard & Poor's 500 Index 2.3 percent lower and into its first bear market since 2002.

Reserve Bank of Australia Governor Glenn Stevens said in a speech yesterday that the global shakeout from the credit squeeze has further to run as banks and securities firms report losses, cut workers and improve risk monitoring.

The following companies were among the biggest gainers and losers on the Australian stock exchange.

CSR Ltd. (CSR AU), Australia's third-largest maker if building products, slumped 34 cents, or 15 percent, to A$1.97, the most since 1987 and the biggest loser on the benchmark. The company said the housing industry is ``challenging'' as 12-year high interest rates dent confidence.

Metcash Ltd. (MTS AU), Australia's biggest grocery wholesaler, gained 4 cents, or 1 percent, to A$3.87, the highest since June 20. The company withdrew from bidding for a pharmaceuticals wholesaling unit of Primary Health Care Ltd. (PRY AU) after the antitrust regulator called for further submissions on the takeover.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.