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Australia shares drop 0.7 pct, investors avoid risk

Australian stocks fell 0.7 percent on Thursday, dragged down by the top banks and miners as investors turned to defensive stocks after weak housing data stoked concerns about the U.S. economic recovery.

business Updated: Jun 17, 2010 13:45 IST
Reuters

Australian stocks fell 0.7 percent on Thursday, dragged down by the top banks and miners as investors turned to defensive stocks after weak housing data stoked concerns about the U.S. economic recovery.

The drop followed a steady recovery in the market over the past month, and brokers said a pullback was inevitable with lingering worries about the euro zone debt crisis and the impact of a proposed mining tax in Australia.

"Certainly the issues in Greece haven't disappeared, and the resource tax is still there," said Daniel Manley, a dealer at Burrell & Co.

"If you get three good days in a row, and you're back above 4,500 points, it's due for a bit of profit-taking."

The market reversed most of the previous session's gains, with the top banks and miners all down about 1 to 2 percent.

The benchmark S&P/ASX 200 index lost 31.7 points to close at 4,527.3.

Citi analysts said Australian shares were pricing in almost no earnings growth, against market forecasts of around 25 percent earnings growth, with the market price-earnings ratio just under 11, well below the long run average since 1992 of 14.8.

"Unless you're factoring in what we call a brutal double dip...equity markets are very cheap at these levels," said Citi investment strategist Richard Schellbach.

But at the same time, he said worries about sovereign debt in Europe would continue to weigh on the market, despite a solid outlook for Australian growth.

BHP Billiton, the world's biggest miner, fell 1.1 percent to A$38.82, while National Australia Bank led the big banks lower, falling 1.2 percent to A$24.80.

On the positive side, defensive stocks like top supermarkets group Woolworths rose 0.4 percent to A$27.80 and blood products maker CSL inched up 0.2 percent.

Top gold miner Newcrest Mining rose 1.4 percent to A$34.64.

New Zealand's benchmark NZX 50 index also fell 0.7 percent, closing at 3,045.7. QBE Insurance , Australia's biggest insurer by premium income, fell 1.4 percent to A$18.68 after flagging late on Wednesday that its insurance margin for the first half of this year would come in at the lower end of its 16-18 percent target range.

The weak U.S. housing starts in May weighed on building materials makers James Hardie, which slid 4.1 percent to A$6.74, and Boral, which fell 1.5 percent to A$5.30. In good times, around three-fourths of Hardie's earnings come from the United States.

Amadeus Energy, a small oil and gas explorer, jumped 35 percent to A$0.25, valuing the group at A$76 million, after saying it had received takeover approaches from U.S.-based companies. It has appointed Macquarie to advise it on the best way to boost the group's value.

First Published: Jun 17, 2010 13:43 IST