Australia shares up 0.8 pct as banks lead on yield play

Tue Jul 30, 2013 10:18pm EDT

(Adds analysis, quotes, stocks on the move)

SYDNEY, July 31 (Reuters) - Australian shares were up 0.8 percent on Wednesday morning as financials and energy stocks gained, but miners fell as investors cut exposure ahead of the Federal Reserve's policy decision and data that could raise questions on global demand.

Top lender Commonwealth Bank of Australia rose 1.1 percent, hitting an all-time high of A$74.87 in early trade. Westpac Banking Corp climbed 1.8 percent.

Investors were buying banks for higher yields as they braced for an expected cut in official interest rates next, said Donald Williams, chief investment officer at Platypus Asset Management in Sydney.

"The prospect of another rate cut is obviously a lot higher than people thought. It makes sense to put more money in yield," Williams said. "People will continue to hunt for these high-yielding equities."

Markets now put the chance of a cut at 92 percent, after Reserve Bank of Australia Governor Glenn Stevens said on Tuesday that inflation would be no bar to a cut in interest rates and the local currency could fall further.

The S&P/ASX 200 index added 40.9 to 5,088.1 by 0137 GMT. The benchmark, which finished flat on Tuesday, is on track to end July with a gain of close to 6 percent.

Energy stocks rose on the recent rally in oil prices. Top energy producer Woodside Petroleum Ltd climbed 1.1 percent, while smaller player Origin Energy Ltd added 0.6 percent ahead of its June quarter production report.

Miners pulled back as iron ore dropped from near 3-month highs. BHP Billiton Ltd lost 0.4 percent, while Rio Tinto Ltd edged down 0.2 percent.

Investors were cautious on miners ahead of U.S. GDP numbers expected to show growth slowed in the second quarter and a Federal Reserve update on its policy outlook on Wednesday, and then Chinese manufacturing data on Thursday, analysts said.

"If the U.S. numbers come lower than consensus and Bernanke again talks about tapering, it will have a dampening effect on big miners," said David Lennox, resources analyst at Fat Prophets in Sydney.

A Reuters poll found Chinese manufacturing activity may have contracted in July for the first time in 10 months, signalling a protracted slowdown in the Australia's main export market. The PMI will be released on Thursday.

Consumer stocks ticked up, with top supermarket owner Woolworths Ltd rising 0.8 percent and Wesfarmers Ltd jumping 1.3 percent. Top phone company Telstra Corp Ltd added 0.5 percent.

New Zealand's benchmark NZX 50 index rose 0.2 percent to 4,557.9.

STOCKS ON THE MOVE

* Mining services company Clough Ltd surged 28.3 percent to a record high of A$1.43, after South African builder Murray & Roberts offered to pay $407 million for the 38 percent of Clough it does not already own.

(0126 GMT)

* Oil and gas producer Drillsearch Energy Ltd jumped 6 percent to A$1.33, as it forecast more growth this year after generating a record A$99 million revenue in fiscal 2013.

(0133 GMT)

* Discovery Metals Ltd jumped 3.3 percent to A$0.16, after saying it remained in discussion with a number of parties in regards to a change of control process, and that it and its lenders had agreed to extend the date for final board recommended offer to August 31.

(0131 GMT)

(Editing by John Mair)