Australian stocks: Stocks end higher, bond rally helps

SYDNEY - The Australian stock market finished modestly higher on Thursday on the back of a string of positive corporate earnings reports and expectations of another rate cut before year's end.

The banking sector was the key support, propelled higher by a solid full-year profit result from the country's biggest bank National Australia Bank, and a rally in debt futures after October unemployment shot to a two year high of 7.1 per cent.

The retail and construction sectors also provided good news, helping push the benchmark S&P/ASX 200 index .AXJO to a session peak and two-month high of 3,290.2 points, before it settled up 16.8 points, or 0.5 per cent, at 3,269.4.

"Lower bond yields mean better equities," said Richard Caldwell, senior institutional adviser at Burdett Buckeridge and Young, who pointed to the fall in the implied yield on the 10-year bond future to five percent.

"It's saying inflation is probably in check and the government can afford to ease rates, again," said Caldwell.

Bank bill futures are pricing in another 50 basis points of interest rate cuts in the cash rate, currently at 4.5 per cent.

Rupert Murdoch-controlled News Corp finished down 33 cents or 2.4 per cent at A$13.49, a session low, after it posted lower first quarter earnings on the back of a broadly weaker advertising market.

"The result was pretty much in line with expectations although there is some concern about the quality of the advertising revenue," said BT Funds Management dealer Jason Hackett.

National Australia Bank closed up 50 cents or 1.7 per cent at A$30.50, after it capped off a strong bank reporting season on Thursday with a 19 percent rise in annual profit, on an accounting basis, to A$4.019 billion (US$2.089 billion). On a cash basis, profit rose 13 per cent to A$3.64 billion.

UBS Warburg banking analyst James Ellis said either way the result was "modestly in line" with expectations, but added that there were still major concerns about the bank's troubled U.S. mortgage servicing unit HomeSide.

Other banks were also strong, with Westpac Banking Corp rallying 2.7 per cent to A$15.41. Last week, Westpac posted an 11 per cent rise in 2000/01 net profit to A$1.9 billion.

In the retail sector, investors were pleased with giant retailer Coles Myer after it posted a 6.8 per cent rise in first-quarter sales to A$5.95 billion, in line with expectations. Coles' shares rose 2.1 per cent to A$7.65.

Australian contractor Leighton Holdings put a positive spin on its outlook saying on Thursday that it expected increased revenues and profits in 2001/02. The stock closed up 38 cents at A$10.70.

Turnover on the wider market was A$1.8 billion, steady with the previous session.