http://www.theaustralian.news.com.au/story/0,25197,23367342-643,00.html

Shares tumble on inflation, US fears

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Staff writers | March 13, 2008

AUSTRALIAN stocks closed 2.3 per cent lower today after robust domestic jobs data fuelled inflation concerns and as Tokyo slumped.

Investors also worried that key US economic data due tonight on retail sales might be weak as investors scale back spending amid fears of recession, while lingering fears of more credit woes in US financial institutions also weighed on market sentiment.

The benchmark S&P/ASX 200 Index slipped 122 points, or 2.3 per cent, to 5135.9, and the broader All Ordinaries dropped 118.4 points, or 2.22 per cent, to 5215.7.

In Tokyo, the benchmark Nikkei 225 index was 3.45 per cent lower by late afternoon.

“While it’s possible we may have seen the lows in share markets, it’s likely that more downside lies ahead in the next few months as the news on the US economy is likely to get worse before it gets better,” AMP Capital Investors chief economist Shane Oliver said.

“However, while the outlook for the next six months or so remains bleak we remain of the view that the bulk of the damage has been done and that by later this year shares should be back onto a sustainable rising trend.”

Australian employers created a better-than-expected 36,700 jobs last month and the unemployment rate surprisingly fell to 4 per cent, its lowest since the 1974 August quarter, a Bureau of Statistics report said today.

The report fuelled concerns about the risk that wage demands would fuel upward inflationary pressures and bolstered speculation the Reserve Bank of Australia would retain a hawkish outlook on monetary policy for the rest of this year.

Analysts stressed the employment report was a lagging economic indicator.

“Nevertheless, the strength of the February numbers will keep the Reserve Bank watching for signs of upward pressure on wages and implies that even if it has finished hiking the cash rate, it is unlikely to be quick to start reducing the cash rate,” said Lehman Brothers Australia chief economist Stephen Roberts.

AMP’s Mr Oliver added: “The fall in unemployment to a new 33-year low is telling us that the economy has been strong over the last year. But the collapse in consumer confidence to its lowest level since 1993 is one of several indicators telling us that the economy is likely to slow significantly and further interest rate hikes are unnecessary.”

The high-yielding Australian dollar shot up as high as US94.17 cents after the February labour force report, up from yesterday’s domestic close of US93.23c, as investors placed bets that official interest rates could rise again this year.

But the Aussie dollar had pulled back by late afternoon to be at US93.40c.

The Reserve Bank raised rates to a 12-year high of 7.25 per cent earlier this month, after increasing rates by 25 basis points last month to fight inflation.