Shares jump 4.5% after Wall Street rally, but recession fears remain: Economy roundup

Australian investors have a reason to smile for the first time in a week after the local market received a boost from a huge night on the global market.

Australian investors have a reason to smile for the first time in a week after the local market received a boost from a huge night on the global market.

The prospect of a 0.5% cut to official US interest rates sparked a sharp turnaround for American markets, which surged 11% overnight. The Dow Jones Industrial Average had its second best day in history, jumping 889.35 points or 10.88% to 9065.12.

Beleaguered financial stocks including banking and insurance companies enjoyed strong support, with the Dow Jones Financials index surging 12%.

The rally also helped the Aussie markets stage a strong opening, with shares jumping 4.2% just after the market opened. By noon AEST, the index was up 4.5% or 170.1 points to 3964.7.

The big banks all received support and mining giant BHP Billiton jumped more than 5% in a strong morning for mining stocks. Among Australia’s most widely-held stocks, conglomerate Wesfarmers enjoyed one the biggest rises, jumping 6.1%.

The strong opening also helped the dollar, which jumped US2c to US64.2c.

In banking news, St George has recorded a 13.9% rise in profit for a full-year total of $1.321 billion for the 2007-08 financial year.

But while the results were above expectations, St George chief executive Paul Fegan told Business Spectator the economic climate is still very unstable.

“Going forward, the outlook for the economy remains uncertain as the effects of the global credit crisis continue to spread and impact the Australian economy, consumer confidence, liquidity and access to funding,” he says.

The theme of economic uncertainty was repeated by IMF deputy managing director John Lipsky, who says the threat of a global recession is growing and cannot be ignored.

Lipsky also argues guarantees on bank deposits, such as the Rudd Government’s plan introduced a fortnight ago, may unintentionally hurt emerging economies because subsidiaries are not covered.

“Thus they may feel pressured to put in place their own programs, even where the resources needed to create credible policies of this nature may not be available,” he says.