Aussie shares fall after rate rise

AUSTRALIA'S guardians of monetary policy surprised many investors last week when they became the first major central bank team to raise rates this year.

The Reserve Bank of Australia on Monday made clear that it was prepared to raise rates further to keep inflationary pressures in check.

That prospect pulled the rug from under Australian blue-chips, and added weight to the belief that many economies could soon see higher borrowing costs. The All Ordinaries index fell 17.4 points to 3248.1, with banks leading the retreat.

'A rising exchange rate cannot be relied on to control inflation over the medium term. That requires domestic pressures to be properly contained,' the RBA said in its quarterly statement. 'While at present those pressures appear manageable, over the medium term they are more likely to grow than to diminish in an economy growing faster than trend.'

Commonwealth Bank of Australia dropped 13 cents to A$27.35, National Australia Bank fell 11 cents to A$29.92 and Australian & New Zealand Banking Group softened 14 cents to A$16.15.

Flag carrier Qantas Airways, part-held by British Airways, gave up five cents, or 1.5%, to A$3.40 as new details about the float of no-frills rival Virgin Blue were unveiled.

Patrick Corp, the transport and logistics group that owns half of the discount carrier, went the other way, gaining four cents to A$15.01. The Virgin Blue debut has been pencilled in for 8 December.

Financial services group AMP, which is demerging its British units, was one the hardest hit, shedding 18 cents or 2.7% to A$6.42.

NAB appeared to dampen hopes that it could bid once AMP's revamp is completed. NAB, which reports tomorrow, bought a minor stake in AMP earlier this year.

In Singapore similar concerns about the knock-on effects of higher interest rates also hurt lenders. Brokers said profit-taking added to the retreat. State-linked bank DBS Group dipped 30 cents, or 2%, to S$14.70, United Overseas Bank weakened 40 cents, or 3%, to S$13.10 and Overseas Chinese Banking Corp traded at S$12.20, lower by 10 cents. The Straits Times index fell 27.13 points, or 1.5%, to 1741.96.

In Hong Kong car-parts maker and recent favourite Denway Motors dived 25 cents, or 3.9%, to HK$6.20 after it failed to win inclusion in the Hang Seng index.

It was followed down by another widely tipped but equally unsuccessful candidate, China Merchants Holdings, which slid down 70 cents, or 6.5%, to HK$10.05.

Global lender HSBC was one of the few gainers despite the rate jitters that knocked many counterparts elsewhere. A buy note from broker Merrill Lynch with a price target of HK$130, founded on hopes for a better local economy, was enough to help the banking group's share advance by HK$1 to HK$118. The Hang Seng index fell back 118 points to 12,097.17.

Japan's Nikkei 225 Average weakened by 124.44 points to 10,504.54, a loss of more than 1%, as investors mulled over the ramifications of the weekend's general election. The ruling coalit ion's Lower House majority was reduced.