The half a percentage point interest rate cut by the US Federal Reserve – its second cut in just over week – early this morning brought about the usual turnaround for stocks on Wall Street, but it was not enough to stop investor jitters in the last hour of trade after the release of a CNBC report.
The report revealed that two of America’s biggest bond insurers would lose their top credit rating, prompting a warning from brokerage Oppenheimer that the downgrades could generate another $40 billion in write-downs for banks this year.
News of the downgrade saw investors flee from the positive vibe ushered in by the rate cut to push the Dow Jones index 0.3% lower to close at 12,442.83 points.
The jitters from the US extended to the Australian market where the S&P-ASX 200 benchmark index opened lower at 5609.8pts before reaching an intraday low of some 5451pts before being rescued by Asian markets and closing up 0.56% at 5650.3pts.
Resource stocks ended the day mixed after a sluggish start, with the big two putting on some notable gains as the takeover deadline set by the UK takeover panel approaches.
Reports, or rather speculation, from the United Kingdom reveal that Rio Tinto has opened up its books to BHP Billiton on the proviso that it increases its bid to 3.5 of its shares for each Rio stock.
BHP’s proposed takeover offer was a 3-for-1 scrip deal. BHP must lay a formal takeover by February 6 or walk away for six months.
BHP closed up 94c (2.6%) at $37.05 while Rio jumped $8.66 (7.6%) to $123.
Firmer base metal prices on the London Metal Exchange also played a part in boosting resource stocks courtesy of concerns over production losses at smelters in China caused by power shortages from the worst snowstorms in the country in half a century.
Power shortages appear to be all the rage at the moment, with South Africa also in the middle of a power crisis; however national power utility Eskom said 90% of power will be restored by the end of this week to mining operations, enabling production to restart after almost a week-long halt.
The official three-month price of aluminium led the charge, climbing 3.2% to last trade at $US2674.50 per tonne, zinc climbed 0.5% to $2339/t, copper crept 0.2% to $7190/t and lead gained 0.6% to $2755/t.
Aluminium producer Alumina dropped 4.7% to $A5.24 following a 15% in its net profit after tax for 2007 on the back of a stronger Australian dollar and higher operating costs, with the latter to continue to put pressure on costs this year.
Other notable movers on the biggish side of town were Mount Gibson Iron which dropped 0.4% to close at $2.61 after it was revealed Chinese steelmaker Shougang snatched up a 19.7% stake in the miner, and no word yet if Shougang and its partner APAC Resources – a major shareholder in Mount Gibson – will launch a takeover.
Minara Resources closed up 23c (4.9%) to $4.93, Summit Resources dropped 18c (8.2%) to $2.02 and Atlas Iron gained 8c (4.9%) to $1.73.
Meanwhile debutant Coppermoly – a spin-off from Canada’s New Guinea Gold – opened at its 25c issue price this morning before closing 13c – a drop of 12c or 48%.
