Australia shares up as banks rally on strong earnings from Westpac, Macquarie

Thu May 2, 2013 9:30pm EDT

(Adds details, comments, stocks on the move)

SYDNEY May 3 (Reuters) - Australian shares rose 0.7 percent on Friday, as forecast-busting earnings from Westpac Banking Corp and Macquarie Group Ltd led a rally in financial stocks.

Sentiment also got a boost from a cut in European interest rates to an all-time low and a positive lead from Wall Street, sending the S&P/ASX 200 index up 34.3 points to 5,164.3 by 0105 GMT. The benchmark fell 0.7 percent on Thursday.

Westpac advanced 0.8 percent after Australia's third-largest lender, reported a better-than-expected 10 percent rise in first-half profit on Friday, as the bank's Australian business recorded double digit earnings growth. The bank also announced a surprise A$0.10 per share special dividend.

"Income is paramount, and Westpac is certainly going to create some euphoria with the result today," said Evan Lucas, market strategist at IG.

"Most people had expected the special dividend probably will be released in the second half of this year rather than the first."

Macquarie surged 10.4 percent to a 3-year high of A$42.88 after Australia's top investment bank beat forecasts with a 17 percent rise in full-year profit as cost cutting and strength in its annuity-style businesses outweighed lingering weakness in capital markets.

"(Macquarie's results) do look quite impressive. It does show that investment banking, and obviously wealth management is increasing," Lucas said.

The strong earnings come on the heels of Australia and New Zealand Banking Group Ltd posting similar stellar results this week, luring more buyers to an already sizzling financial sector that's been the main driver of the Australian market in recent weeks. ANZ climbed 1 percent.

Commonwealth Bank of Australia edged up 0.3 percent while National Australia Bank climbed 1 percent to notch a 5-year high of A$34.16.

The offshore news from overnight was slightly more upbeat, providing investors reason to buy back some of the beaten-down stocks.

"I think the broader picture is reasonably positive," said Shane Oliver, head of investment strategy at AMP Capital Investors.

"Evidence suggests a lot of investors are on the sidelines looking for better returns."

The European Central Bank cut interest rates for the first time in 10 months, by a quarter percentage point to a record low 0.50 percent, and held out the possibility of further policy action to support the recession-hit euro zone economy.

Miners were firmer. BHP Billiton Ltd and Rio Tinto Ltd climbed 0.8 percent and 1.3 percent respectively after metal prices recovered overnight on the ECB's rate cut.

U.S. stocks closed about 1 percent higher on Thursday, led by tech shares, after weekly jobless claims figures pointed to improving labor market conditions a day before the closely watched monthly payroll report.

New Zealand's benchmark NZX 50 index lost 0.8 percent or 37.4 points to 4,537.1.

STOCKS ON THE MOVE

* Qantas Airways advanced 1.2 percent to A$1.87 after the national carrier said that its FY 13 and FY 14 capital expenditure is forecast at $1.6 billion and $1.5 billion respectively.

(0107 GMT)

* JB Hi Fi Ltd soared 8.1 percent to A$16.76 after the electronic goods and entertainment retailer announced a profit upgrade for financial year 2013 to between $112 million and $116 million. JB Hi Fi shares have surged 62 percent so far this year.

(0108 GMT)

(Reporting by Thuy Ong and Maggie Lu Yueyang; Editing by Shri Navaratnam)