Australia Shares End Down 1.1% before China Data - Wall Street Journal

By David Rogers

SYDNEY--The Australian share market abruptly reversed a three-day recovery Friday after U.S. Federal Reserve Chairman Ben Bernanke didn't provide the quantitative easing hints the market hoped for, and an unexpected interest rate cut from the People's Bank of China prompted caution about Chinese economic data due Saturday. Australia is due to remain closed Monday for a public holiday.

The benchmark S&P/ASX 200 closed down 1.1% at 4063.7 after falling to 4054.8.

The index formed a bearish key-reversal pattern, signalling a technically significant failure near the 200-day moving average at 4110 and a potential resumption of the downtrend, which has seen the market fall as much as 10.4% from the year's high of 4448.5 on May 1.

Qantas fell 7.6% after Standard & Poor's outlined the risk to Qantas' credit rating after Wednesday's profit warning. Elsewhere in the industrials sector, QR National, Leighton, Sydney Airport, Asciano and Toll dived 2.2%-2.7%. Major banks fell 1.1%-1.8% on offshore peer weakness, while BHP Billiton rose 1% after London Metal Exchange copper gained 1.1%. Fortescue fell 1.9% as spot iron ore fell 3% and Newcrest Mining slumped 4.7% with spot gold down 3.3% as the market pared expectations of quantitative easing in the U.S. Echo Entertainment rose 4.4% after Singapore's Genting Casinos bought a 4.9% stake.

Wall Street stumbled after Bernanke stopped short of signalling new stimulus measures. Bernanke said the Fed "remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate," suggesting that stresses weren't currently bad enough to warrant such action. In Asia, Japan's Nikkei 225 fell 2.1% despite upwardly revised first-quarter gross domestic product data. China's Shanghai Composite was down 0.1%.

CMC Markets' chief market strategist, Michael McCarthy, said China's 25 basis point interest rate cut, together with its decision to allow Chinese banks to lend at a discount of up to 20% to the benchmark rate, were positive steps. However, he was concerned about the timing of the rate cut, since it occurred ahead of the release of May's economic data, due Saturday.

"I think China's rate cut shows we are going to see weaker industrial production and retail sales data," said McCarthy. "I think it's a reasonable conclusion that they have acted because the data are weak."

There was also a sense that upside potential was limited before Greek elections, which could determine if Greece remains in the euro bloc.

"It's a situation where risks assets can't keep rising before the Greek elections," McCarthy said. "While I expect it to trade in a slightly more positive mode, this market can't take off."

Macquarie strategists said while risks to the near-term growth forecasts remained, the growth implied by the market's current valuation is already far below that embedded in valuations leading into the global financial crisis of 2008. "Critically, debt levels and cash support for the current level of dividends are much improved compared to the excess and what proved to be unsustainable levels that stood prior to the global financial crisis," the strategists said in a report.

Write to David Rogers at david.rogers1@wsj.com