Stocks hammered on US debt stalemate
AUSTRALIAN stocks came in for broad-based selling yesterday in line with Asian markets on fears that the US government would fail to reach agreement on raising the country's debt ceiling by the August 2 deadline.
AUSTRALIAN stocks came in for broad-based selling yesterday in line with Asian markets on fears that the US government would fail to reach agreement on raising the country's debt ceiling by the August 2 deadline.Talks between US president Barack Obamaand Congress on Sunday failed to produce an agreement on spendingcuts, tax increases and how the $US14.29 trillion debt ceiling could be raised to avoid a sovereign default.All three global ratings agencies have threatened to cut the nation's triple-A credit rating unless an agreement is reached.In Asia, Japan's Nikkei fell 0.85 per cent and Hong Kong's Hang Seng lost0.86 per cent.Australia's benchmark S&P/ASX 200 Index slid72.5 points, or 1.58 per cent, to 4530.4 only a point above the low of the day. The fall erased the gains made on Thursday and Friday.Ord Minnett investment adviser Francesco De Stradis said that, despite the local market's strong fundamentals, it had sold off on the US debt fears."If they don't decide by [the deadline], you can expect the markets to get a bit more punishing," he said.A market correction of10 per cent might be on the cards, he said although "level heads might prevail prior to that"."I would say to investors that having some gold exposure is a good thing," Mr De Stradis said.The gold price soared. Newcrest Mining was the best performer in the top 50, gaining 33?, or 0.9 per cent, at $40.38. Spot gold reached $US1624.07 an ounce before the start of share trading, and closed at $US1617.56, up $US28.82.The big four bankswere hit hard. National Australia Bank dropped 59? (2.3 per cent) to $24.63, Commonwealth lost 98?(1.9 per cent) to $49.54,ANZ fell 42? (1.9 per cent) to $21.31 and Westpac declined 34? (1.6 per cent) to $21.26.However, the banks finished above their lows of the session after the Reserve Bank said they had little direct exposure to the sovereign debt of the riskiest European countries and were more resilient to any disruption in credit markets.Market heavyweight BHP Billiton eased 37?, or 0.9 per cent, to $43.06 and Rio Tinto dropped 44? or 0.5 per cent to $82.06.Retailers sank after Premier Investments downgraded its earnings outlook and announced the closure of as many as50 stores. Premier slumped 19?, or 3.6 per cent, to $5.12.The dollar slipped a fifth of a US cent to $US1.0813 as investors awaited any progress from the US on an agreement to raise the debt ceiling.