Aussie rate rise hits lenders

BANK stocks were in the frame today as the Reserve Bank of

A bullish note from Goldman Sachs, however, suggested that lenders in Hong Kong may well be poised for further gains.

In Australia, the central bank raised lending rates by 0.25% to 5% in the first tightening in almost a year and a half. Economists, who had not expected a move before next month, suggest more rises could be round the corner.

The effect on equities was immediate. ANZ Banking Group dropped by 35 cents, or 2%, to A$17.14; Westpac Banking slipped 19 cents, or 1.2%, to A$15.77; and National Australia Bank declined 34 cents, or 1.1%, to A$30.05.

Rounding out the damage, St George Bank was 46 cents, or 2.2%, weaker at A$20.38 and Commonwealth Bank of Australia traded at A$27.52 down by 39 cents, or 1.4%.

Observers said that the RBA was stepping in now after clear signs had emerged that the global economy was on a firm upwards path, coupled with its desire to take some of the steam out of Australia's housing boom.

They suggested that the cycle of tightening could, in stages, take interest rates as high as 5.5% or even 5.75% over six to nine months. They also noted that the RBA's decision would redouble market interest in what Bank of England policy makers will decide tomorrow.

Resource stocks were also lower on the rate move, with added pressure from profit-taking and weakness following declines overnight on Wall Street. Rio Tinto gave up 64 cents, or 1.8%, to A$35.32, while BHP Billiton dipped 20 cents, or 1.7%, to A$11.34.

With a majority of counters in the red the All Ordinaries index slipped 26.3 points, or 0.8%, to 3238.4.

Hong Kong's benchmark traded sideways with select profit-taking evident after yesterday's buoyant performance. Investors clipped the wings of high-flying global lender HSBC, which retreated HK$1, or 0.8%, to HK$118.

But Goldman reckons that any such setback will be temporary. 'We remain highly positive on the Hong Kong banking sector,' its team said. 'We welcome a pause but we do not see a looming peak in valuations. We expect further share price gains in the next six to nine months.'

The Goldman case rested on its belief that Hong Kong's economy was improving and, secondly, that local lenders remain finely positioned to exploit growth opportunities thrown up by the booming China market.

It raised its 12-month share-price target on HSBC to HK$135 from HK$121. For HSBC unit Hang Seng Bank, which today gained 50 cents or 0.5% to HK$99.75, the target was upped to HK$107 from HK$100,

The Hang Seng index trod water, up just 3.71 points at 12,444.43 as computer maker Legend eased ahead of second-quarter figures, yielding two cents or 0.7% to HK$3.72.

In Japan stocks declined, taking their cue from a softer dollar, which pulled the rug from under exporters.

Honda Motor dipped 80 yen, or 1.8%, to 4480; Bridgestone tyres fell 39 yen, or 2.7%, to 1384; and Nissan declined 41 yen or 3% to 1294. The Nikkei 225 eased 10.43 points or 1% to 10,837.54.

The Korea Composite Stock Price Index added

6.56 points to 802.62.