Australian Stocks, Bonds Jump on `Shock' Rate Cut; Banks Rally

By Shani Raja

Oct. 7 (Bloomberg) -- Australian stocks rallied and bonds jumped after the nation's central bank cut benchmark interest rates by one percentage point, the biggest reduction since 1992.

Commonwealth Bank of Australia and Westpac Banking Corp. climbed 2.6 percent and 3.4 percent, respectively, after the Reserve Bank of Australia cut the overnight cash rate target to 6 percent from 7 percent. BHP Billiton Ltd., the world's biggest mining company, jumped 6.4 percent.

``This is a shock,'' said Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney. ``They are clearly realizing monetary conditions were way too tight and they needed to do something about it pretty quickly.''

The S&P/ASX 200 Index added 1.7 percent to 4,618.70 at the close in Sydney, reversing an earlier loss of 0.5 percent immediately before the decision. The index has lost almost a third of its value this year amid a credit freeze triggered by the U.S. subprime mortgage crisis.

JB Hi-Fi Ltd. led retail stocks higher, rising 7.7 percent to A$11.95, the most since June. Harvey Norman Holdings Ltd., Australia's biggest furniture and electronics retailer, gained 4.3 percent to A$2.93.

``All of us in business who owe the bank money will now pay less for it, which helps,'' said Harvey Norman's Chairman, billionaire Gerry Harvey. ``That's good for business.''

Stockland, Australia's largest housing developer, rose 7.6 percent to A$5.70, the most since Sept. 19, in anticipation of higher property demand due to lower mortgage rates.

Bonds Rise

Newcrest Mining Ltd., Australia's largest gold producer, slumped 8.3 percent to A$24.25 as the prospect of looser credit globally reduced the appeal of gold as a hedge against market turbulence.

Australian government bonds rose. The yield on the three- year note fell 39 basis points or 0.42 percentage points, to 4.488 percent, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

The currency fell 2.4 percent to 72.72 U.S. cents from 74.47 cents in late Asian trading yesterday. It reached 69.90, the lowest since September 2004.

The following were among stocks that rose of fell today on the Australian stock exchange.

Minara Resources Ltd. (MRE AU), Australia's second-largest nickel producer, slumped 11 cents, or 8.3 percent, to A$1.16, the lowest since Sept. 23. A measure of six metals traded on the London Metal Exchange dropped 5.8 percent, with nickel declining 5.6 percent.

Paperlinx Ltd. (PPX AU), Australia's largest paper maker, plunged 39 cents, or 22 percent, to a record low A$1.36, the benchmark's biggest loser. Paperlinx completed a A$150 million ($108 million) share placement offer at a 29 percent discount to its last closing price.

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