Australian shares fell 2.0 percent on Thursday, their worst daily loss in more than two months, depressed by a weak preliminary manufacturing activity survey from China. The flash HSBC Purchasing Managers' Index (PMI) for May fell to 49.6, slipping under the 50-point level demarcating expansion from contraction for the first time since October, deeply unwelcome news from the biggest market for Australia's raw materials.
The benchmark S&P/ASX 200 index extended losses after the HSBC survey and dropped 103.0 points to close at a one-month low of 5,062.4. The index fell 0.3 percent on Wednesday.
The market was also reacting to the perceived increase in risk that the US Federal Reserve could soon decide to wind back its bond buying programme, following Congressional testimony by Chairman Ben Bernanke, who suggested the Fed could decide in a few monetary meetings to begin winding back.
"Markets are a little bit fickle about the commentary coming from Ben Bernanke," said Martin Lakos, division director at Macquarie Private Wealth in Sydney. "I think the market is a bit ahead of itself, though." The Fed's current $85 billion per month bond purchase programme has been a major force behind a rally in US equities which have risen about 16 percent this year, and also the 10 percent gain in the Australian stock market.
The market had three attempts to break the 5,200 line in the last nine days, but all failed, said Andrew Quin, research strategy co-ordinator at Patersons Securities in Perth. "So technically the market will look a little bit weak, (and is) probably due to come back a bit," he said.
New Zealand's benchmark NZX 50 index slipped 0.5 percent to 4,588.6. The market suffered broad-based losses, with almost 80 percent of stocks trading lower, IG chief market strategist Chris Weston said in a note. The big four banks all pulled back from a recent bull run on the back of strong earnings and high yields. Top lender Commonwealth Bank of Australia declined 2.8 percent, and Westpac Banking Corp plunged 4.1 percent.
Despite the sell-off, Michael McCarthy, chief market strategist at CMC markets in Sydney, dismissed some analysts' view that Australian banks had been overvalued. "The strength of their balance sheets and their reasonable profit outlook combined with important investor metrics like dividend yields, means that they're not overvalued," he said. QBE Insurance Group shone in the financial sector by jumping 6.6 percent to a nearly 2-year high, after rating agency S&P affirmed its core insurer financial strength rating.
Top miner BHP Billiton Ltd pared earlier gains and ended 1.1 percent lower, and rival Rio Tinto Ltd declined 2.1 percent. Australia's biggest listed gold miner Newcrest Mining Ltd slid 2.2 percent after bullion prices slipped on Bernanke's comments. Discovery Metals Ltd surged 24.3 percent, bouncing back following volatile trading in recent sessions after it said it was talking to a number of parties including spurned Chinese suitor Cathay Financial Corp and it was now operating in breach pf its debt covenants.
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