Australian Stocks Rise the Most in Four Months; Banks Climb

By Shani Raja

July 21 (Bloomberg) -- Australian stocks rallied the most in almost four months, led by banks, on signs the fastest inflation in 17 years is easing after prices paid to the country's producers grew slower than economists forecast.

National Australia Bank and Commonwealth Bank of Australia, the country's two biggest, jumped on speculation the central bank will keep interest-rate increases on hold and after Citigroup Inc. reported a smaller-than-estimated loss. Fortescue Metals Group Ltd. climbed after saying an iron-ore project in Western Australia may be expanded on demand from China.

``The financial sector was a big drag on the market, and there's relief that there's some good news,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``We had a pretty good week in the U.S., and the Reserve Bank of Australia is starting to ease pressure on interest rates.''

The S&P/ASX 200 Index climbed 171.40, or 3.5 percent, to 5,011.80 at the close in Sydney, the most since March 25. Financial stocks accounted for 42 percent of the advance. The broader All Ordinaries Index added 3.3 percent to 5,075.40.

An index of producer prices advanced 1 percent after rising 1.9 percent in the first quarter, the Bureau of Statistics said in Sydney today. The median estimate in a Bloomberg survey of economists was for a 1.6 percent increase.

Slower price gains give the central bank scope to leave borrowing costs unchanged this year, after raising the benchmark interest rate to a 12-year high in March. Reserve Bank of Australia Governor Glenn Stevens said last week inflation will moderate as the $1 trillion economy cools.

Project Expansion

National Australia Bank gained 4.9 percent to A$28.32, the largest advance since May 12. Commonwealth Bank rose 3.7 percent to A$43.35.

Citigroup, the biggest U.S. bank by assets, on July 18 reported a loss of 49 cents a share from continuing operations. That was less than the 60-cent loss estimated on average in a Bloomberg survey. Citigroup joins JPMorgan Chase & Co., the third-biggest U.S. bank by assets, and Wells Fargo & Co., the No. 1 lender on the U.S. West Coast, in reporting results that topped analyst estimates last week.

Fortescue Metals rose A$1.01, or 12 percent, to A$9.13, the most since Jan. 23. The company, seeking to be Australia's third- largest iron ore producer, said its Pilbara project in Western Australia may be expanded threefold.

The following stocks rose or fell. Stock symbols are in brackets after company names.

Platinum Asset Management Ltd. (PTM AU), the Australian fund manager controlled by billionaire Kerr Neilson, slumped 15 cents, or 5.2 percent, to A$2.75, the lowest in almost a week. Platinum said June 18 that broker earnings-per-share forecasts of 22.1 cents were ``optimistic.''

Primary Health Care Ltd. (PRY AU) gained 25 cents, or 5.3 percent, to A$5, the highest close since July 3. Sanofi-Aventis SA, France's largest drugmaker, agreed to pay A$560 million ($544 million) in cash for Primary Health Care Ltd.'s consumer unit.

Sundance Resources Ltd. (SDL AU), seeking to build a $3.3 billion iron ore project in Cameroon, soared 9.5 cents, or 43 percent, to 31.5 cents, the biggest gainer on the S&P/ASX 200 Index. The company announced a potential mineral resource of 1.2 billion tons at the Mbarga deposit at Sundance's 90 percent owned Mbalam iron-ore project.

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