Australia shares, BHP fall to two-month lows; Myer up

Thu Nov 15, 2012 12:57am EST

* S&P/ASX 200 index down 39.2 points at 4,349.2

* Weakest close since Sept. 13

* BHP down 1.8 pct at two-month low; banks down

* Myer at six-month high as Q1 sales please

* Qantas up on share buy back

MELBOURNE, Nov 15 (Reuters) - Australian shares fell 0.9 percent to the weakest close in two months on Thursday, with big miners and banks tumbling on concern over protracted U.S. budget negotiations and violence in the Middle East.

Investors fear the world's biggest economy could be pitched back into recession if Congress fails to agree to a budget deal that could avert a package of tax increases and spending cuts, otherwise set come into force early next year - the so-called "fiscal cliff".

Top miners BHP Billiton and Rio Tinto both fell 1.8 percent, BHP hitting a two-month low closing low of A$33.12.

Australian shares are down 5.1 pecent from the 15-month highs reached in October.

"Markets are reflecting worse case scenarios today with investors fleeing in droves. Tensions escalating in the Middle East added to the panic selling," said Ben Taylor, trader at CMC Markets.

Brent oil prices rallied as Israel launched a major offensive against Palestinian militants in Gaza. .

The benchmark S&P/ASX 200 index fell 39.2 points to 4,349.2, according to the latest data, the weakest close since Sept. 13.

New Zealand's benchmark NZX 50 index slipped 0.1 percent to 3,951.5 points.

National Australia Bank closed at A$23.23, its weakest since June 26, while Westpac Banking Corp fell 0.9 percent to A$24.64, its weakest since end September.

Gold producer Newcrest Mining sank 4.5 percent to A$24.31, the softest close since August 7.

Global stocks fell after U.S. President Barack Obama reiterated his call for the wealthy to pay higher taxes, setting the stage for a tough budget battle with Congressional Republicans.

"While the markets were hoping for the Democrats and Republicans to stop playing hardball and find some middle ground the opposite seems to be happening. Increasing taxes for the rich has the two parties in a stalemate and is not something the market wanted to hear," said Taylor.

Individual shares managed gains.

Myer Holdings jumped 6.5 percent to $A2.13, a six-month high, after the department store's sales beat forecasts and it said the trend had continued.

Qantas Airways added 4.1 percent to $1.28 after the airline said it will spend up to A$100 million in an on-market share buyback and pay back some debt.

Asciano gained 3.6 percent to A$4.33 after it said it was on track to meet targets. (Reporting by Miranda Maxwell; Editing by Simon Cameron-Moore)

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