Date: December 31 2012
Australian shares fell 0.5 per cent on Monday, trading in low volumes in a shortened session ahead of the New Year's Day holiday, dragged by big miners and banks as investors awaited the outcome of US budget talks.
The market has risen 14.6 per cent in 2012, the best yearly gain since the recovery of 2009, although it some lost ground on the last day of the year with all eyes on the US fiscal tussle.
A total of $US600 billion ($577 billion) in tax hikes and automatic cuts to government spending will start kicking in on Tuesday - New Year's Day - if US politicians cannot reach a deal. Economists fear the measures will push the US economy into a recession.
"I imagine some deal will be done, but the problem will be the impact on confidence," said Damien Boey, an equity strategist at Credit Suisse.
Analysts expected a difficult year ahead, with Europe continuing to cast a shadow over the financial markets, but the Australian market might be supported by more interest rate cuts.
"Cash rates will continue to come down next year," said Winston Sammut, investment director at Maxim Asset Management.
"You will see money moving out of cash back into the market, basically to hold where it was."
The benchmark S&P/ASX 200 index fell 22.4 points to 4648.9, according to latest data. It rose 0.5 per cent to 4671.3 on Friday, its highest close since June 2, 2011.
The market saw a brief rebound during the session though, after the December HSBC Purchasing Managers' Survey showed the pace of manufacturing activity in China, Australia's biggest resources buyer, hit its fastest rate since May 2011.
However, China's stimulus-driven growth might be unsustainable if a weaker US economy results from a fiscal cliff mishap, Boey added.
"If you've got a weaker American economy because taxes have gone up and confidence is down, what you will find is that the key driver of commodities prices, which is the Chinese economy, will not actually be able to sustain strong growth," he said.
Among the top miners, both BHP Billiton Ltd and Rio Tinto Ltd lost 0.8 per cent. Gold miner Newcrest Mining Ltd ended 1.5 per cent lower.
The banking sector was weaker as well, led by a 0.9 per cent drop in Westpac Banking Corp. Australia and New Zealand Banking Group bucked the trend and gained 0.2 per cent.
Shares in Fairfax Media Ltd rallied 7.4 per cent after a consortium of allies of shareholder Gina Rinehart purchased a small holding to add to the mining mogul's stake.
Sundance Resources Ltd soared 15.6 per cent after the Republic of Congo granted it a key mining permit and following reports China's Hanlong Group plans to complete its long-delayed $US1.4 billion takeover by March.
New Zealand's benchmark NZX 50 index fell 0.4 per cent to 4066.5. It has risen 24.2 per cent for the year.
Both the Australian and New Zealand markets had shortened sessions on New Year's Eve.
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