Congress pact forgotten as stocks drop
A GRIM outlook for the US economy and a dip in consumer spending drove heavy falls on the sharemarket yesterday.
A GRIM outlook for the US economy and a dip in consumer spending drove heavy falls on the sharemarket yesterday.Stocks extended Tuesday's losses despite the US Senate passing an agreement to raise the country's debt ceiling.The S&P/ASX 200 Index closed down 100.8 points, or 2.3 per cent, at 4332.8, its biggest daily fall in two months. The index is now at its lowest since August last year when it sank to 4320.1.Ratings agency Moody's said yesterday it had assigned a negative outlook to the US credit rating. It confirmed that the US retained its top Aaa rating but warned it could be downgraded if there was a "weakening of fiscal discipline" in the coming year.Arab Bank Australia treasurer Anthony Issa said investors were rattled by the prospect of a US credit downgrade."They're obviously pulling their cash out of the sharemarket in anticipation it will probably go even lower if we enter into a second round of the GFC," he said.Mr Issa said sluggish business conditions in the US were adding to the market's woes. Consumer spending in America wasdown 0.2 per cent in June.In the same period in Australia, retail sales fell0.1 per cent. Economists had expected a 0.4 per cent rise.Royal Bank of Scotland's head of sales trading, Justin Gallagher, said the dip in spending was dampening market sentiment. "It's very hard to see how the economy is going to be stimulated when people are pulling back their expenditure, not increasing it."Mr Gallagher said about75 per cent of companies had exceeded expectations in the US corporate reporting season. But the results had not helped investor confidence because of concerns about broader economic issues, particularly debt problems in the US and Europe."The concern I have going into our own reporting season is while these macro issues continue to exist, the reporting season will be largely a non-event," he said.The uncertain economic environment prompted a surge in demand for gold. Spot gold leapt $US37.33 to $US1662.30 an ounce. Goldminer Newcrest Mining was up 72? to $40.75.The materials index dropped 2.7 per cent while the energy sector slipped2.5 per cent. BHP Billiton led the session's losses, finishing down $1.42 (3.4 per cent) at its low of the day, $40.15. Rio Tinto slid $2.45 (3.1 per cent) to $77.60.The four big banks each lost ground. NAB dropped 77? to $23.20, ANZ 53? to $20.29, CBA 87? to $48.55 and Westpac 27? to $20.10.