Sharemarket up nearly 5% on back of Citibank bailout: Economy roundup

The Australian sharemarket has surged ahead 4.8%, following strong leads on Wall Street and the news of a $US306 billion rescue for US banking giant Citigroup.

The Australian sharemarket has surged ahead 4.8%, following strong leads on Wall Street and the news of a $US306 billion rescue for US banking giant Citigroup.

After a disappointing few days last week, the market has rallied with the major banks enjoying high gains. The benchmark S&P/ASX200 index was up 149.1 points or 4.35% to 3574.2 at 12.10 AEDT. The dollar also enjoyed a rise to $US65 cents.

BHP shares rose 10.4% to $25.81, while ANZ leapt 7.4% to $13.86. Commonwealth Bank shares jumped 5% to $31.74.

Overseas, Wall Street also rallied after news of the Citigroup bailout. The rescue will guarantee $US306 billion in troubled assets. Under the deal Citibank will receive a $US20 billion cash injection from the $US700 billion bailout plan passed in October.

US markets rallied after the news, with the Dow Jones Industrial Average jumping 396.97 points or 4.93% to 8443.39 – the best two-day run since 1987.

Amid speculation of an OPEC cut to production, oil jumped 9% to $54 a barrel. But the RACV continues to indicate there will be more price drops into next month, with a possible dip below $1 a litre.

Back home, Qantas has reduced its 2008-09 profit before tax estimates to just $500 million from a previous estimate of $749 million. Citing lower demand, it will cut capacity by the equivalent of 10 aircraft.

Chief executive Geoff Dixon says the group is putting itself in a position to bounce back when economic conditions recover.

“By taking this action now we will have the flexibility to switch growth back on as soon as market conditions improve. We are in unpredictable times and the international business market, in particular, has slowed,” he says.

Toll road operate Connecteast Group will launch a $450 million capital raising, and will reduce distributions in an effort to reduce debt and interest costs.

The group, which operates Melbourne’s Eastlink tollway, says it is “creating a more robust capital structure in light of challenging global capital markets”.