Australia Stocks, Currency Fall on Concern Expansion Will End

By Shani Raja

Oct. 16 (Bloomberg) -- Australia's benchmark stock index and currency dropped amid growing evidence the nation's 17-year economic expansion will end, as Ford Motor Co. said it will cut 450 local jobs and National Australia Bank Ltd. said profit fell.

National Australia, the country's biggest lender by assets, retreated 4.3 percent after saying profit probably dropped 11 percent as a result of higher provisions for possible securities losses. CSR Ltd., Australia's third-largest maker of building products, declined 7.5 percent after cutting its profit forecast because of concerns construction will slow.

``The market's now pricing in a significant global slowdown,'' said Saxon Nicholls, Melbourne-based principal at Herschel Asset Management Ltd., which manages about $500 million. ``That implies slowing demand for commodities and the concept of a more general slowdown affecting pretty much everything.''

Australia's benchmark S&P/ASX 200 Index plunged 6.7 percent to 4,013.40 at the close, eroding a rebound from a 16 percent loss last week, the worst in its history dating back to 1992.

The nation's currency fell 5 percent, the most since Oct. 8, when it plunged to a five-year low versus the U.S. dollar on concern the world is sliding into recession. The currency dropped as much as 8 percent, before trading at 66.92 U.S. cents at 2:34 p.m. in Sydney from 70.60 cents late in Asian trading yesterday.

Australian government bonds rose for the third day. The yield on the benchmark three-year note fell 21 basis points to 4.43 percent, the biggest drop in more than a week. The price of the 5.75 percent security advanced 0.525, or A$5.25 per A$1,000 face value, to 103.23. A basis point is 0.01 percentage point.

Ford's Australian unit hopes to complete its cut of 450 personnel by the end of the year. They are in addition to the reduction of 350 jobs already announced. The across-the-board cuts will be made in Melbourne and Geelong, Ford Australia Chief Executive Officer Marin Burela said.

Economic Crisis

The drop in Australian stocks and the currency come as the government tries to mitigate fallout from the global economic crisis. The country relies heavily on sales of materials such as copper and iron ore, with commodity exports making up about 17 percent of Australia's A$1 trillion economy.

BHP Billiton Ltd. tumbled 13 percent today, the most in 21 years, after a measure of six metals traded in London slumped 6.5 percent on concerns worldwide demand will wane as the slowdown worsens. Rio Tinto Group plunged 16 percent.

Australian Prime Minister Kevin Rudd earlier this week announced an A$10.4 billion ($7 billion) economic stimulus package and has said the government may take further action. The government has also guaranteed bank deposits.

The nation's financial system and economy remain ``strong,'' Rudd said in an address to the National Press Club in Canberra yesterday, adding the global credit crisis was in a ``new and dangerous'' phase.

Central Bank Funds

Australia's central bank today added A$2.79 billion to the financial system, seeking to ease funding costs as banks hoard cash due to the global credit squeeze. The Reserve Bank of Australia added funds through so-called repurchase agreements after estimating a money market deficit of A$1.82 billion today.

U.S. stocks dropped the most since 1987 yesterday after the biggest decline in retail sales in three years, and amid growing doubts that bank bailouts will prevent the economic slump from worsening. The Standard & Poor's 500 Index sank 9 percent to 907.84, with nine companies declining more than 20 percent. The Dow Jones Industrial Average retreated 733.08, or 7.9 percent, to 8,577.91, its second-biggest point drop ever.

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