Australia shares drop 2pc; Aquila slumps

MELBOURNE: Australian stocks fell back in afternoon trading on Monday, sliding 2.1 percent on worries about global debt markets drying up and a possible slide back into recession in the United States and Europe.

The benchmark S&P/ASX 200 index was down 87 points at 4018.5 at 0154 GMT, adding to a 4 percent slump on Friday.

New Zealand's benchmark stock index was down 2.6 percent at 3,190.8, after hitting an 11-month low of 3,160.8.

Potential mining takeover targets defied the gloom, after Rio Tinto and Mitsubishi Corp proposed to buy the 14 percent of Coal & Allied they do not already own for $1.56 billion, a 34 percent premium.

Whitehaven Coal, perennially seen as the next coal takeover target, jumped 1 percent, Gloucester Coal rose 1.9 percent and Aston Resources, developing a big coal mine near Coal & Allied's operations, rose 0.7 percent.

STOCKS ON THE MOVE

Coal and iron ore miner Aquila Resources tumbled 9 percent to a two-year low with investors spooked at the prospect of global credit drying up and limiting Aquila's ability to fund key projects.

"The investment thesis for Aquila depends on them selling assets and raising quite a lot of debt. The current macro environment is not conducive to either of those two things," said Sam Berridge, an analyst at RBS.

Aquila did not benefit from punters betting on a takeover as Brazil's Vale, which co-owns Aquila's key assets, is seen standing in the way of any other potential suitors.

Food group Goodman Fielder sank 8.7 to a record low of A$0.785 after JPMorgan analysts warned that market forecasts for the group's earnings for the 2012 financial year were too bullish. The head of the group's biggest business, baking, resigned last Friday.

With gold prices hitting a new record, gold miners led the board, with Resolute Mining up 5.7 percent and St Barbara Mines up 3.6 percent. Top gold miner Newcrest Mining rose 0.4 percent.

Investors pounced on smaller miners who could be next in line to be taken over. Sandfire Resources , 19 percent owned by OZ Minerals , jumped 4.3 percent.

Electronics retailer JB Hi-Fi recovered from an early slide to trade up 0.9 percent, after reporting a 13 percent rise in underlying profit, at the bottom end of its own forecast. Its forecast for sales in 2012 at A$3.2 billion was slightly below market forecasts.

Copyright Reuters, 2011