Australia shares hit 3-week low after Fed; NZ down

[BENGALURU] Australian shares slipped to a three-week low on Thursday with broad-based losses after the US Federal Reserve signalled it still expects one more interest rate hike by the end of the year despite a recent bout of low inflation.

As expected, the Fed kept interest rates unchanged on Wednesday and said it would begin reducing its balance sheet in October, but also suggested that a third hike might be on the table in December.

"I think that's quite negative in the context that the market was pricing in a relatively weak US dollar as they assumed the Fed won't be doing much," said Mathan Somasundaram, a market portfolio strategist with Blue Ocean Equities.

"There's a fair amount of pressure on the market - as interest rates go up, asset prices have to come down."

The Australian dollar backtracked to US$0.8010, from a peak of US$0.8105, after the Fed's comments.

The S&P/ASX 200 index fell 51.89 points, or 0.9 per cent, to 5,657.2 at 0245 GMT, and was headed for its third session of falls in a row. The benchmark fell 0.1 per cent on Wednesday.

Material stocks drove the losses on the index, with BHP Billiton and gold miner Newcrest Mining falling as much as 1.1 per cent and 3.8 per cent, respectively, to their lowest in over four weeks.

Chinese iron ore futures fell to their lowest level in nearly two months on Wednesday, while gold fell to an over three-week low.

Commonwealth Bank of Australia rose as much as 0.8 per cent in morning trade after the lender said it agreed to sell its life insurance arm to Hong Kong's AIA Group for US$3.05 billion, in the biggest Asian buyout of an Australian financial services firm. The bank's shares have since eased back since to trade marginally lower.

It was rare respite for CBA shareholders, with the stock down 9.1 per cent since money-laundering allegations broke on Aug 3.

The other three of the "Big Four" banks fell with the rest of the market.

New Zealand's benchmark S&P/NZX 50 index fell 46.06 points, or 0.6 per cent, to 7,773.18 at 0245 GMT.

Construction firm Fletcher Building was the biggest drag on the index, falling as much as 5.2 per cent to hit an eight-week low.

Meanwhile, data showed New Zealand's gross domestic product jumped in the second quarter, with economic growth a central issue in the country's impending general election.

The ruling National Party regained a wide lead over the opposition Labour Party in an opinion poll on Wednesday after party leaders went head-to-head in the final debate before Saturday's election.

REUTERS