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Australian stocks close down on interest rate woes

SYDNEY: The Australian share market closed weaker on Tuesday as nervousness about higher interest rates plus an Australian public holiday on Wednesday sidelined many investors, said traders.

The benchmark All Ordinaries Index closed down 18 points or about 0.6 percent at 3,078.6 but off its intraday low of 3,048.1.

Sentiment is not likely to change until after both the US and Australian central banks make a move on interest rates.

"If our interest rate goes up half a percent it would hit this nervousness on the head but if it goes up 25 basis points people will be looking for the next rise," said Peake Lands Kirwan broker John Cooney.

Domestic inflation figures due out Friday could help clear up the uncertainity. The consensus market view is for December quarter consumer prices to rise 0.8 percent, taking the annual inflation rate to two percent.

Most analysts expect the Reserve Bank to increase its official cash rate by 25 basis points to 5.25 percent on February 1 but a significantly higher CPI rise might prompt a 50 basis point increase.

The short-term rate uncertainty combined with high bond yields, has kept pressure on banking stocks, said traders, and explained National Australia Bank's 42 cent fall on Tuesday to A$22.28 (US$14.70).

The stock had risen sharply on Monday in expectation of a strong rise in NAB's first quarter earnings, due for release Thursday.

Some commentators believe bond yields have almost peaked.

"So, interest rate sensitive stocks such as banks and property trusts should now be in buying territory," said brokerage Dicksons Ltd in their latest market report.

Turnover on the wider market was A$2.5 billion, but about A$1.2 billion of that was associated with off market trade in Westpac securities.

Declining stocks outpaced advances by a ratio of eleven to six, while about 21 percent of stocks traded remained steady.-Reuters