By Ross Kelly
SYDNEY--Australian stocks sank 1.7% on Tuesday after the central
bank indicated a much-anticipated rate cut might not be imminent,
worsening an already negative day of trading.
In its deepest single-day fall since May 6, the country's
benchmark S&P/ASX 200 index fell 99.4 points to 5636, extending
a 0.7% fall on Monday.
Stocks were already around 1% lower right before the Reserve
Bank of Australia left interest rates unchanged as expected. But
the central bank surprised the market by omitting any clear easing
bias from its accompanying policy statement.
Many investors expect the RBA to cut rates again to stimulate
the economy as a long mining boom fades, but Tuesday's statement
revived speculation the rate-cutting cycle could be over. That
strengthened the Australian dollar, while pushing the share market
down.
"There's a broad anticipation that the Australian dollar should
be lower and if we see any pickups, it provides an opportunity for
overseas investors to sell into that strength," said Tony Russell,
a Brisbane-based trader at Morgans.
The Australian stock exchange has undergone a bout of volatility
in recent days as investors mull whether Greece can negotiate a
solution to its debt woes, the U.S. economy can handle
interest-rate increases expected later in the year, and the
Australian economy can successfully transition away from a mining
boom that continues to fade as China slows.
"The risks in global markets are simmering under the surface,"
said Evan Lucas, a Melbourne-based strategist at IG.
Shares of global mining giant BHP Billiton Ltd. (BHP.AU) fell 3%
after Deutsche Bank downgraded its recommendation on the company's
shares to a hold from buy, while Citigroup predicted the company
would have limited scope for capital management until at least its
2018 financial year.
Iron-ore prices are currently hovering around US$60 a metric
ton, with some investors fearful a recent recovery will be
short-lived. "We believe the rally in iron-ore prices has peaked,
as speculative positioning cools and fundamentals have
deteriorated," Citigroup analysts said.
Rival mining company Rio Tinto Ltd. (RIO.AU) lost 1.6%, while
banking stocks also struggled. Shares of Commonwealth Bank of
Australia (CBA.AU) and Westpac Banking Corp. (WBC.AU) fell 1.8% and
2.4%, respectively.
Write to Ross Kelly at ross.kelly@wsj.com