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Australian shares fall as banks take a breather

The Age logo The Age 1/05/2014 Sally Rose

Shares tumbled on the first day of May as investors sold banking stocks despite strong first-half earnings by ANZ Banking Group, while miners fell after the iron ore price plunged further.

The benchmark S&P/ASX 200 Index lost 40.3 points, or 0.7 per cent, today to 5448.8, while the broader All Ordinaries Index also lost 0.7 per cent to 5430.4, with all sectors in the red.

A more optimistic outlook for US economic growth from the United States Federal Reserve, which helped lift the Dow Jones index to a new record close, was not enough to buoy the local market.

In the afternoon, a report commissioned by the government sparked fears of a tough Federal Budget that could curb domestic growth at a time the value of Australia's most important export, iron ore, is under pressure.

Local shares rose briefly when trade began following equity markets in the US, which lifted after the Federal Reserve concluded its April meeting with the announcement it will cut its monthly stimulus by another $US10 billion as flagged.

"The commentary was more upbeat than last meeting and I think that's appropriate," BlackRock Australia head of fixed income Steve Millersaid.

Local investor confidence took a hit after The National Commission of Audit recommended the government consider cutting Medicare, rasing the pension age and allow the states to tax income ahead of May's budget.

"Over the past 12 months the impact of low interest rates has been felt in an improving housing sector and retail spending in the eastern states, but in the past fortnight that has pulled back as consumers start to worry about budget cuts," Legg Mason Australian equities chief investment officer Reece Birtles said.

"Talk of a new 'deficit tax' is bad for consumer confidence. It will be hard for local stocks to push higher over the coming months," Mr Birtles said.

Fund managers said budget tightening would limit the company earnings growth needed to underpin gains in the value of the local sharemarket.

"It is politically expedient to have a tough first term budget, and I expect this one to have a bigger impact on the sharemarket than normal," Mr Miller said.

"Fiscal tightening is warranted but I think the market has underestimated the need for it. It will create headwinds for equities over the coming months, particularly for retail and housing related stocks."

ANZ dropped 1.2 per cent to $34.07 despite beating analyst forecasts to report a 11 per cent rise in half-year profit, lifting its interim dividend more than expected by 14 per cent to 83¢ per share, and showing the bank's controversial strategy to expand in to Asia is on-track.

Credit Suisse analysts expressed concerns the bank is setting aside a smaller proportion of capital for provisional coverage, at 0.7 per cent down from 0.85 per cent in the previous six month period.

The rest of the big four banks were also lower. Commonwealth Bank of Australia fell 0.3 per cent to $78.64, Westpac Banking Corporation lost 1.2 per cent to $34.70, and National Australia Bank shed 1.7 per cent to $34.71. Telstra Corporation declined 0.4 per cent to $5.20.

Elsewhere in the financial services sector insurance stocks were mostly higher, with QBE Insurance Group, AMP Ltd, and Suncorp Group advancing.

Mining was the worst-performing sector, down 1.1 per cent, as iron ore prices approached a 12 month low, official Chinese data showed demand for Australia's biggest export is growing more slowly than hoped, and the world's biggest producer, Brazil's Vale SA, posted a steeper decline in first quarter profit than expected due to weaker iron ore prices and tipped them to fall further.

China's official manufacturing purchasing managers index rose 0.1 points in April to 50.4 points, missing expectations for a rise to 50.5. The spot price for iron ore, landed in China, fell 2.7 per cent to $US105.40 a tonne, or near two-year lows.

Australian resources giant BHP Billiton lost 0.7 per cent to $37.50, main rival Rio Tinto fell 1.5 per cent to $60.79 while iron ore miner Fortescue Metals Group dropped 4 per cent to $4.85.

Retail group Wesfarmers, owner of Coles and Bunnings, edged up 0.1 per cent to $42.75, after its quarterly sales growth figures beat rival Woolworths earlier in the week. Woolworths fell 2.1 per cent to $36.52.

Gold, copper and nickel miner Independence Group was the worst-performing stock in the ASX 200, down 4.9 per cent at $4.12. Engineering group Transfield Services was the best-performing stock in the ASX 200, climbing 4.7 per cent to $1, its highest price since early December.

Logistics group Brambles lifted 0.4 per cent to $9.47 after analysts upgraded their recommendations in response to yesterday's third quarter trading update. "The company has more than offset the adverse short term impact on pallet volumes of the North American winter and the later timing of Easter," Deutsche Bank analyst Cameron McDonald said.

Gambling group Tabcorp Holdings lifted 2.2 per cent to $3.80 as analysts digested yesterday's results presentation, which showed quarterly revenue grew 2.5 per cent but highlighted continued structural changes in the industry.

Analysts were at a loss for a reason why uranium miner Paladin Energy was one of the top-performing stocks in the ASX, up 3.5 per cent at 45¢, given the commodity price for the radioactive material has declined in every session since April 1 and is now at $US30.50 per pound. Canadian company Cameco said during its quarterly trading update it remains bearish on the near term price outlook.

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