US cuts rate to zero, Commonwealth Bank’s embarrassing gaffe, shares up: Economy roundup

The US Federal Reserve has set key interest rates to a record low zero to 0.25% in a desperate bid to kickstart the world’s biggest economy.

The US Federal Reserve has set key interest rates to a record low zero to 0.25% in a desperate bid to kickstart the world’s biggest economy.

The Fed says it expects rates to remain at “exceptionally low levels for some time”.

“The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” it said in a statement.

The cut brings the federal funds rate to the lowest level since July 1954. The Fed also says it will expand purchases of debt issued by mortgage agencies to support the housing market.

Wall Street rallied after the announcement, with the Dow Jones Industrial Average jumping 4.2% to 8924.14. Oil dropped 2% to $US44 ahead of OPEC’s meeting in Algeria later today.

Commonwealth Bank’s embarrassing gaffe

Back in Australia, the big corporate news was reports that Commonwealth Bank of Australia has scrapped a $2 billion share issue. CBA said on Tuesday night it had completed the placement to institutions, but this morning it called for a halt in its shares.

“CBA wishes the trading halt to last until such time as it makes an announcement to the market that the placement has been finalised…,” the bank said.

Business Spectator reported that investors said CBA had relaunched the issue at $26 per share, down from the $27-a-share offer it revealed to the market on Tuesday.

It is believed the bank will announce that its bad debts would be higher than the market had expected.

Centro rescue package

In other corporate news, Centro Properties Group has now been granted a stay of execution, securing a one-month extension for all of its debt facilities. The group’s shares jumped 89.65% to 16.5 cents after the announcement.

The group announced after the market closed yesterday it had reached an agreement with all of its 23 financiers to achieve long-term refinancing and stabilisation plans for the group.

Centro owes $3 billion to eight Australian banks, $US5.1 billion to five US banks and $US450 million to 10 US insurance groups.

Shares rise

Centro’s big rise helped the local sharemarket to early gains. The benchmark S&P/ASX200 index was up 30.6 points or 0.86% to 3586.8 at noon AEDT. The dollar also rose to US69c after the Fed’s big rate cuts.

Westpac shares dropped 3% to $15.99, while NAB lost 1.1% to $18.98 after it announced it is in talks regarding buying Wizard Home Loans.

ANZ slipped 2.9% to $13.94 after news the group will slash more than 600 Australian jobs, moving their positions to India.

The Age reports a paper citing a presentation to senior management says the bank will move 620 full-time jobs to a Bangalore technology centre in order to meet a board target.

Growth outlook

New data suggests Australia will avoid a recession but experience low economic growth. The Westpac-Melbourne Institute index of economic activity, which indicates the likely pace of growth three to nine months in advance, dropped 1.1% to 0.6% in October.

Westpac chief economist Bill Evans says the value of the index will provide a guide as to whether Australia will enter a recession. “It is likely that growth in 2009 will, at best, show little improvement on the anaemic 1.6% we expect through 2008.”

Evans also says the $10.4 billion stimulus package and interest rate cuts will stimulate the economy.

“In particular we have seen aggressive easing by the monetary authorities and unlike other developed economies, monetary policy is having a significant effect on reducing interest rates for the private sector,” he says.