Australia stocks jump, currency slumps after rate cut

'In Australia the available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak,' Reserve Bank of Australia Governor Glenn Stevens said.

Jason Reed/Reuters
A plot of land is shown as sold in Sydney's newly-developed beachside suburb of Green Hills, February 2, 2015. The Reserve Bank of Australia (RBA), which held its first policy meeting of the year on Tuesday, announced a lowered official interest rate to 2.25%.

Stocks in Australia jumped and its currency slumped on Tuesday after the central bank cut interest rates to shore up economic growth, while other Asian benchmarks were subdued as concerns about the world economy weighed on sentiment.

Australia's S&P/ASX 200 jumped 1.3 percent to 5,698.80 after the central bank's decision to cut interest rates was announced at midafternoon Sydney time. Japan's benchmark Nikkei 225 dipped 0.9 percent to 17,397.24 and South Korea's Kospi edged 0.1 percent lower to 1,950.02. Hong Kong's Hang Seng lost 0.3 percent to 24,406.92 while the Shanghai Composite Index in mainland China rose 0.4 percent to 3,153.43, rebounding a day after poor factory data dragged down shares.

The Reserve Bank of Australia decided to cut its benchmark interest rate to a record low of 2.25 percent in an attempt to revive the economy, which is weighed down by falling commodity prices. Like other countries that have taken similar action recently, Australian policymakers felt that with inflation easing as oil prices slump, they have more space to maneuver to bolster economic growth by cutting rates.

 "In Australia the available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak," Reserve Bank of Australia Governor Glenn Stevens said in a statement explaining the reasoning behind the rate cut. The Australian dollar "remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices," he said. "A lower exchange rate is likely to be needed to achieve balanced growth in the economy."

The rate decision pushed the Australian dollar 1.8 cent lower to 76.6 cents from 78 cents Monday. In other currencies, the dollar slipped to 117.12 yen from 117.45. The euro fell to $1.1329 from $1.1341.

U.S. stock indexes ended higher Monday after a late rally by energy companies as oil prices rebounded for a third day. The Dow Jones Industrial Average added 1.1 percent to 17,361.04 while the S&P 500 rose 1.3 percent to 2,020.85. The Nasdaq composite rose 0.9 percent to 4,676.69.

U.S. benchmark crude oil gained 42 cents to $49.99 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.33 to close at $49.57 on Monday, its highest level in nearly a month, but is down 38 percent in the past three months. Brent crude, a benchmark for international oils, rose 40 cents to $55.15 a barrel in London.

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