Australia shares hit 5-week high, investors eye rate cut

Mon Dec 3, 2012 12:25am EST

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(Updates with closing prices, comments)

MELBOURNE Dec 3 (Reuters) - Australian shares gained 0.6 percent on Monday to reach a five-week high, as investors bet on the Reserve Bank of Australia cutting official interest rates to bolster the flagging economy.

Weaker than expected retail sales, job advertisements and corporate profits figures released on Monday all supported expectations for a rate cut by the central bank at its policy meeting on Tuesday.

Following the data, interbank futures pointed to a 75 percent chance that the bank would ease rates.

"For many parts of corporate Australia, business conditions are as tough as in the global financial crisis," said CommSec chief economist Craig James.

"Profits have fallen for the fourth straight quarter, inventories have lifted for the fourth straight quarter and sales are sluggish across many key sectors," he said, adding there was a strong chance of a rate cut on Tuesday.

A Reuters poll showed 16 of 23 economists expect the RBA to cut its cash rate by 25 basis points to 3.0 percent, matching record lows seen during the global financial crisis.

The benchmark S&P/ASX 200 index advanced 25.5 points to 4,531.5, the highest closing level since Oct. 23.

The benchmark rose 2.1 percent last week.

Despite the increased expectations for a rate cut, retailers were mostly lower after data showed Australia's retail sales were flat in October, missing economists' expectations for a rise of 0.4 percent.

Among the top retailers, department store Myer Holdings closed down 1.8 percent and smaller rival David Jones lost 2.0 percent.

Defensive shares including telecoms, food and healthcare led the gains on Monday, with Telstra up 0.9 percent, baker Goodman Fielder up 1.5 percent and blood products maker CSL Ltd rising 2.4 percent.

Shares in Woodside Petroleum Ltd gained 0.9 percent to A$34.11 after the company announced plans to acquire a 30 percent interest in a major liquefied natural gas (LNG) discovery off the coast of Israel in a $1.25 billion deal.

Shares in Gindalbie Metals Ltd slumped 11.9 percent to A$0.26 after the iron ore junior completed a A$40 million fully underwritten placement to institutional investors.

New Zealand's benchmark NZX 50 index slipped 1 point to 4,049.1. (Reporting by Victoria Thieberger; Editing by Jonathan Thatcher)

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