Australia Stocks Surge as Regulators Act to Curb Short Selling

By Shani Raja

Sept. 22 (Bloomberg) -- Australia's benchmark stock index climbed to a two-week high after regulators extended a ban on short selling and the U.S. government proposed a $700 billion plan to avert a financial meltdown.

Babcock & Brown Ltd., an infrastructure manager, led a surge in financial stocks, soaring by a record 69 percent and Macquarie Group Ltd. rose 6.1 percent, as governments, central banks and stock market regulators stepped up efforts to prop up global financial markets.

``Exchanges are putting a hold on short selling,'' said Sean Fenton, who manages the equivalent of $540 million Tribeca Investment Partners in Sydney. ``It would be potentially destabilizing for the Australian market if we were the only place where financials could be shorted.''

Australia's benchmark S&P/ASX 200 Index advanced 177.20, or 3.7 percent, to 4,981.30 at 12:50 p.m. in Sydney, with finance companies accounting for about half the advance. The gain pared the index's decline this year to 21 percent.

Australia's corporate regulator extended a ban on short selling to so-called covered transactions, following similar moves in the U.S. and U.K., in an attempt to cut volatility in the stock market.

Traders won't be allowed to transact covered short sales, in which stock is borrowed for the purposes of betting on share price declines, unless they are hedging positions, the Australian Securities and Investments Commission said on its Web site yesterday.

It abolished so-called naked short sales, in which traders never borrow the shares, last week.

`Dent Liquidity'

The moves are ``going to dent market liquidity going forward,'' said Fenton. ``You'll see hedge funds unwinding positions, long and short, and after that initial burst of activity you'll see volumes start to dry up.''

ASX Ltd., which runs Australia's biggest stock exchange, lost A$2.54, or 7.4 percent, to A$31.96, the benchmark's third- biggest loser, on concern market trading volumes will decline.

Investor confidence in the financial system was shaken after the credit crisis led Lehman Brothers Holdings Inc. to file for bankruptcy, and prompted government takeovers of American International Group Inc. and mortgage giants Fannie Mae and Freddie Mac. The S&P/ASX 200 rose 4.3 percent on Sept. 19 as U.S. plans for an agency to buy bad debt eased concern the credit turmoil will deepen.

U.S. Treasury Secretary Henry Paulson's rescue plan would allow the government to buy a variety of mortgage-related securities to relieve a freeze in credit markets. The Bush administration yesterday widened the scope of the plan to include assets other than mortgage-related securities.

Fortescue

Fortescue Metals Group Ltd. rose the most in almost four years, jumping 26 percent to A$7.18. Fortescue, seeking to become Australia's third-largest iron ore exporter, has been the target of short-sellers, Chief Executive Officer Andrew Forrest said last month.

Murchison Metals Ltd. jumped the most since June 19, 2007, gaining 21 percent to A$1.47. The company said last week that the ``recent sharp decline'' of its shares was caused by a slump in global financial markets and liquidity issues.

Babcock & Brown leapt 69 percent to A$1.35. Macquarie Bank gained 6.1 percent to A$38.10.

BHP Billiton Ltd. surged 9.4 percent to A$38.71, the most in 11 years, while Rio Tinto Group gained 6.7 percent to A$108.31, the most since January. A measure of six metals traded on the London Metal Exchange rallied 3.4 percent, with zinc rising 3.7 percent, copper 4.6 percent and nickel 1.2 percent.

Minara

Minara Resources Ltd., Australia's second-largest nickel producer, gained 24 percent to A$1.38, the most since October 2003.

Seven Network Ltd., the Australian television broadcaster controlled by billionaire Kerry Stokes, was the index's worst performer. It slumped 6.6 percent to A$6.49, the most in five years, after saying first-half earnings may halve because of a decline in equities and advertising sales.

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