Shares dive, Rudd defends growth predictions: Economy roundup

If investors thought things were looking up, today’s disappointing market results would have given them a reality check.

The Australian sharemarket has dived 2.7% after negative leads from Wall Street and fear a multi-billion deal between Rio Tinto and Chinese company Chinalco may fall through.

The benchmark S&P/ASX200 index was down 105.5 points or 2.74% to 3750.6 at 12.15 AEST. The dollar has also taken a hit, falling from nearly US77 cents to US75 cents.

Commonwealth Bank shares have dropped 2.6% to $35.80, as ANZ fell 2.1% to $15.38. NAB dropped 1.6% to $21.37 while Wesfarmers fell 1.4% to $22.50.

Rio Tinto shares have fallen 10% after shareholders called for the company to scrap a deal with Chinese group Chinalco, and pursue a capital raising instead.

Australian Investment Company director Ross Barker, who is also one of Rio Tinto’s investors, told The Australian Financial Review that the deal favours Chinalco over other investors.

“Existing shareholders should be given an opportunity to recapitalise the company rather than it being preferential to one shareholder,” Barker said.

Overseas, US stocks fell on disappointing retail sales figures, with sales falling a second consecutive month. The Dow Jones Industrial Average dropped 184.22 points or 2.18% to 8284.89.

Telco giant Singapore Telecommunications, which owns Australian group Optus, has declared a 12.9% decline in full year net profit to $S3.448 billion.

Fourth quarter net profit fell by 17.3% to $S903 million from the previous corresponding quarter. The company said the weak Australian dollar had hurt its earnings.

“Singapore and Australia operations put in resilient performances by achieving solid revenue and EBITDA growth in local currency terms, despite the slowdown in both economies, and demonstrated good cost management,” the company said in a statement.

Meanwhile, AMP chairman Peter Mason told shareholders at the company’s annual general meeting today that market conditions will continue to deteriorate into 2010.

“Market conditions in 2009 are tough and we are working on the basis that this will remain the case into 2010, and perhaps beyond,” he said.

“Even though stockmarkets have picked up over the past couple of months, the economic recession has a long way to go. As we work to preserve capital and control costs, we are also preparing the company for some significant changes that are likely to lie ahead,” he said.

Prime Minister Kevin Rudd has defended Treasury’s optimistic forecasts, which predict GDP growth of 4.25% in 2011-12.

Opposition Leader Malcolm Turnbull has attacked the predictions, which he said are four times more than the forecasts made by the International Monetary Fund, and differ from economists at Westpac, UBS and ANZ.

“Obviously there’s going to be debate among forecasters,” Rudd told Parliament.

“But the Government believes the independent advice of the Treasury, and I would say to those opposite they should respect the independence and the integrity of the Commonwealth Treasury.”