Australian stocks fell 1.6 percent on Monday, led down by the top banks, as investors shied away from riskier assets after talks to lift the US debt ceiling broke down, raising the prospect of an unprecedented default. With an August 2 deadline little more than a week away, US lawmakers have steadfastly refused to compromise and talks once again collapsed in finger pointing and acrimony.
"There is still nervousness on the US debt ceiling issue," said Macquarie Private Wealth division director Martin Lakos. "Ultimately it will get resolved, they will come to some sort of deal. It is in the Americans' hands to do so," he said. Adding to macro worries about global economic stability, ratings agency Moody's cut Greece's debt rating by three notches, saying the chance of a default is now "virtually 100 percent".
Locally, banking stocks led the retreat with losses of between 1.6 percent and 2.3 percent, with the steepest loss posted by National Australia Bank, off 2.3 percent at A$24.63. One of the few bright spots on the day was gold miner Newcrest after gold hit a fresh high above $1,622 an ounce amid the stalemate on US debt talks. Newcrest was up 0.8 percent at A$40.35.
The benchmark S&P/ASX 200 index fell 72.5 points to 4,530.4, the largest one-day decline since July 12. The index had rallied 1 percent on Friday to end at a two-week high. New Zealand's benchmark NZX 50 index closed down 0.6 percent at 3,428.2. Shares in Premier Investments, owner of Just Jeans, Dotti, Smiggle and other youth brands, dropped after the company announced a strategic review alongside a sharp profit downgrade.
Premier said it now expects 2011 earnings before interest and tax in the range of A$64 million to A$66 million, down from A$80 million to A$85 million previously, as the July school holidays did not provide the usual lift to sales. Losses gathered through the day and the shares ended down 3.6 percent at A$5.12. Amid a grim retail environment, other retailers also felt the chill, with department store Myer slipping 2.0 percent on broker downgrades and electronics stalwart JB Hi-Fi down 2.0 percent.