Local markets were led lower by financials after the RBA lifted its inflation forecast and flagged further rate hikes. Trading halts and suspensions across the market have caused jitters among investors who were already worried about banks' exposure to highly leveraged companies in light of troubles faced by Centro and MFS.
In its quarterly statement on monetary policy, the Reserve Bank of Australia(RBA) raised its forecast for annual underlying inflation for the second quarter of 2008 to 3.5 per cent, from 3.25 per cent. The RBA also predicted underlying inflation would stand at 3.5 per cent by the end of 2008.
The RBA said it saw significant risk of inflation remaining uncomfortably high, and added interest rates would likely need to be higher unless the economy slowed.
RBA forecasted GDP growth at 3.25 per cent at end-2008 and 3 per cent percent in 2009.
At lunch, the All Ords lost 81.3 to 5642.6 and the ASX/200 picked up 85.3 to 5572.7 on a over 500 million shares traded.
Banks and Financials were 2.5 per cent in the red, with St George, ANZ and Westpac falling the most, all down almost 3 per cent. Meanwhile, CBA and NAB were both down around 2.6 per cent.
In other financials, ASX and AXA, which are set to release full and half year results this week, were down 3.1 per cent and 1.6 per cent respectively.
Macquarie Group was down 2.4 per cent, Babcock & Brown was 3.3 per cent lower, while Allco Finance Group was in trading halt pending an announcement.
Rumours of a possible bid to privatise the company have been circulating.
Credit Corp lost 73 per cent by lunch after cutting its FY08 profit guidance.
Materials and Resources were 0.2 per cent lighter after the morning session.
Shares in BHP Billiton fell 0.5 per cent, while rival Rio Tinto shed 1.2 per cent.
Yesterday, Rio Tinto reiterated its defence against BHP's pre-conditional offer, issuing a letter to shareholders asking them to take no action regarding BHP's bid.
Zinifex was 0.4 per cent lower at the break. On Friday, the zinc-miner extended its $745 million hostile takeover bid for Allegiance Mining to 22 February. Allegiance was up 0.5 per cent.
Gold miners, Lihir and Newcrest were above the gain line on the stronger gold price. Newcrest added 1.9 per cent while Lihir gained 0.4 per cent.
Property Trusts dropped 3.4 per cent on a 4.8 per cent loss in Westfield Group, a 5.2 per cent plunge in Goodman Group and 4.1 per cent fall in DB RREEF.
Earlier today, DB RREEF said it had signed Rio Tinto as the major tenant at the trust’s new Queensland office development.
Consumer Staples shed 1 per cent. Coca Cola Amatil was down 1.9 per cent while Lion Nathan was up 0.5 per cent. Coca Cola Amatil is due to release its FY results this week, while Lion Nathan will be hosting its AGM. Wesfarmers was down 2.6 per cent.
Energy stocks fell 1.1 per cent. Heavily indexed Woodside Petroleum was down 1.2 per cent, while WorleyParsons managed a 2 per cent rally. Elsewhere Origin Energy shed 3.3 per cent, while Resource Pacific jumped 10 per cent.
Resource Pacific said it had started discussions with a third party that could lead to a more attractive offer for shareholders than the sweetened $3.20 per share bid announced by Xstrata on Friday. The company also urged patience with regards to the Swiss miner’s approach.
Healthcare stocks added 0.2 per cent. Symbion Health edged 0.2 per cent higher, while takeover target Primary Health was down 3.5 per cent.
Primary reported a 24 per cent fall in first-half net profit to $20.4 million for the six months to December. The company said that the result was impacted by the interest costs of increasing its stake in its takeover target Symbion to 20 per cent.
Industrials were down 2.5 per cent on the back of United Group and Leighton, whose shares had lost 17 per cent and 5.9 per cent respectively.
United’s share price plummeted after its first half results fell short of market estimates.
Elsewhere, Qantas and Brambles were both down around 3.5 per cent.
Consumer Discretionary stocks were 1.5 per cent lighter at lunch.
Media stocks Fairfax and News Corp had lost 3.4 per cent and 2.7 per cent respectively.
David Jones was up 2.2 per cent after the company posted a 9.3 per cent jump in second quarter sales to $664 million.
Utilities shed 1.2 per cent with Babcock & Brown Power 4.2 per cent lower and AGL Energy down 2.9 per cent.
Telecommunications fell 1.1 per cent. Telstra and the telco’s instalment receipts dropped 2 per cent and 3 per cent respectively.
Around the region, the Nikkei 225 was closed today, while across the Tasman, the NZSE50 dropped 34.4 to 3578.0. Meanwhile, the Straits Times Index had shed 106.5 to 2932.0.
Spot gold was trading at US$922.75 an ounce, while the Aussie was buying US$0.9018.
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