FED:Markets fall then rebound on historic day

AAP General News (Australia)
08-09-2011
FED:Markets fall then rebound on historic day

SYDNEY, Aug 9 AAP - What a rollercoaster ride.

Pure panic after a fall of more than five per cent on Wall Street led to another massive
plunge on the Australian share market on Tuesday morning.

Shares lost over $40 billion in morning trade, sending the benchmark S&P/ASX200 index
to more than a two-year low and into bear market territory.

The Australian dollar also plunged, falling from its overnight price of 103.55 US cents
to a low of 99.29 US cents as investors looked to avoid risk.

"The sheer panic to sell at any cost was indiscriminate from the market open and absolutely
astounding," CMC Markets sales trader Ben Taylor said.

But shares began a remarkable turnaround from noon, when CPI data from China showed
non-food inflation was lower than last month, leading investors to believe there is no
immediate need for an interest rate rise there.

Shares continued to rise for the remainder of the session and closed with gains of 1.2 per cent.

A key factor in the turnaround was a short covering relief rally, brokers said.

Amid the heavy falls traders were short selling, selling borrowed stock with the aim
of buying it back at a lower price.

But when shares began to rise, they moved to either take what profit was left, or mitigate
losses by buying back stocks.

"The combination of short covering and bargain hunting has seen a pretty amazing rally,"

IG Markets analyst Ben Potter said.

The dollar came back as well, trading at 101.95 US cents as the sharemarket closed.

AAP dmc/dlm/jjs

KEYWORD: MARKETS FRONTER

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