Australian shares up more than 3 percent; financial stocks lead gains.Australian shares closed sharply higher on Wednesday as financial stocks soared after a Federal Reserve rate cut and better-than-expected results from
Goldman Sachs (NYSE:GS) and Lehman Brothers
(NYSE:LEH) soothed anxiety over the troubled credit markets.
The Fed cut its benchmark fed funds rate by 75 basis points to 2.25 percent overnight to its lowest level since December 2004, and signalled it was prepared for further cuts if needed.
Overnight, the Dow posted its biggest one-day point gain in more than five years, spearheading a rally in global equity markets.
Europe, Asia; UBS, National Australia Gain
Stocks rose in Europe and Asia for a second day as the Federal Reserve's cut in interest rates helped bolster speculation banks will weather the credit-market turmoil and China Mobile Ltd. reported higher-than-expected earnings.
UBS AG, Europe's largest bank by assets, and National Australia Bank Ltd. led financial shares higher. China Mobile, the world's biggest wireless operator by users, climbed in Hong Kong. Visa Inc., the largest payment-card network, is set to start trading today in New York after underwriters sold shares for more than the company had forecast.
The MSCI World Index added 0.6 percent to 1,432.36 at 8:05 a.m. in London as all 10 industry groups except utilities gained. Futures on the Standard & Poor's 500 Index slipped 0.2 percent.
The S&P 500 yesterday rallied the most since October 2002 as earnings from Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. eased concern investment banks are collapsing and the Fed cut its benchmark rate by three-quarters of a percentage point.
``Liquidity shouldn't really be the problem now'' after the rate cuts, Andy Lynch, who helps manage about $10 billion at Schroder Investment Management in London, said in an interview with Bloomberg Television. ``We are going to see short, sharp rallies.''
Morgan Stanley, which analysts expect to report a 57 percent drop in first-quarter profit today, will likely join Goldman Sachs and Lehman in reassuring investors it has ample cash reserves.
Europe's Dow Jones Stoxx 600 Index added 0.7 percent. The U.K.'s FTSE 100 rose 0.6 percent, as did Germany's DAX. France's CAC climbed 1 percent.
'We also go into the Easter break which may lead to markets being relatively quiet tomorrow.'
Trading on the Australian share market will be shortened tomorrow. It will close at 2.10 pm and will be closed on Friday and Monday.
The S&P/ASX 200 closed up 203 points or 4.0 percent at the day's high of 5,289.1. The All Ordinaries added 185.4 points or 3.6 percent to 5,349.2.
Wesfarmers has decided to hang on to Coles' underperforming general merchandise arm, Kmart.
Wesfarmers had considered selling off the struggling chain after it took over the Coles empire last year.
But the Perth-based conglomerate announced today it had concluded its strategic review of Kmart with a decision to retain the chain and "invest in its continuing improvement".Australian diversified conglomerate Wesfarmers added 1.76 dollars or 5 percent to 37.10 dollars. Wesfarmers today said it will retain its Kmart business, encouraged by an improving performance and growth prospects.
The S&P/ASX 200 March futures contract was up 197 points at 5,295.
The yield on the 10-year bond rose 0.094 percentage point to 6.057 percent, while the yield on 90-day bills gained 0.028 percentage point to 7.808 percent.
Among the big banks, National Australia Bank (OOTC:NABZY) was up 2.06 dollars or 7.4 percent at 29.80 dollars and ANZ Banking Group rose 1.69 dollars or 8.0 percent to 22.69 dollars.
Commonwealth Bank of Australia was up 2.43 dollars or 6.5 percent at 40.00 dollars and Westpac Banking (NYSE:WBK) was 1.52 dollars or 6.8 percent higher at 24.00 dollars.
Australia's leading investment bank, Macquarie Group (OOTC:MCQEF) , surged 6.18 dollars or 13.7 percent to 51.25 dollars, while its second-largest, Babcock & Brown (OOTC:BBNLF) , added 85 cents or 6.7 percent to 13.55 dollars.
'Based on fundamentals, the banks are continuing to look cheap and as such we believe this presents an opportunity for long-term investors,' Goldman Sachs JBWere said in a note to clients.
'However, given uncertainty around the fallout from the US credit crisis and potential bad debt losses, in the short term sentiment is likely to continue to remain negative,' it said.
Resource stocks also rallied following higher base metal prices on the London Metal Exchange overnight.
Index leader BHP Billiton (NYSE:BHP) was up 1.25 dollars or 3.5 percent at 36.95 dollars, while rival Rio Tinto was up 3.19 dollars or 2.6 percent at 125.99 dollars.
Takeover target Midwest Corporation rose 13 cents or 2.4 percent to 5.65 dollars. The iron ore miner today said it was worth at least 7 dollars a share, which is more than an offer of 5.60 dollars by China's Sinosteel Corp.