Australia Stocks Slump as Banks Fall, Commodities Weaken

MELBOURNE, Australia--Australian shares weakened to a two-week low Wednesday as a drop in commodity prices dragged mining and energy companies lower and banks faced a second day of selling.

Weakness in U.S. stocks as oil prices slipped to their lowest levels since September set the tone for the local market, which was exacerbated by a pullback in iron-ore prices and renewed concerns over the outlook for the country's banks.

After an initial sharp fall, the S&P/ASX 200 held a fairly narrow range to finish near the session low with a drop of 91.6 points, or 1.6%, to 5665.7. It was the sharpest single-day decline of the year.

Selling was widespread, with only the healthcare subindex in positive territory.

"While last night's U.S. market action was a nervous wobble that still leaves major indexes comfortably above support levels, it has been enough for already nervous local markets to continue where they left off yesterday," said Ric Spooner, chief market analyst at CMC Markets in Sydney.

Energy stocks notched up big losses as crude-oil futures remained under pressure in Asian trading after U.S. prices fell overnight, returning to bear-market territory as global oversupply persists.

Woodside Petroleum was 2.1% lower, Oil Search lost 2.9% and Santos fell 2%.

Diversified miners BHP Billiton and Rio Tinto were down 3.8% and 2.9%, respectively, and Fortescue Metals Group was 4.6% weaker as Chinese iron-ore futures declined amid a broad commodities pullback, retreating from last week's recovery by the steelmaking commodity.

National Australia Bank led the major banks lower, losing 2.9%. Commonwealth Bank of Australia, Westpac Banking and Australia & New Zealand Banking were each down by 1.8%.

"Moody's downgrade added some pressure yesterday but realistically there are some other more relevant major issues why the selling may continue, including persistent fears of a housing bubble, the recent budget levy, rising cost of funds and low credit growth all enough reasons to tread cautiously," said Tristan K'Nell, institutional trader at CCZ Statton Equities in Sydney.

The four biggest banks, which dominate Australia's home-loan market and are among the largest stocks in the ASX 200, rallied about 20% following the U.S. presidential election but have steadily pulled back since the start of May. After attracting buying interest last week, they have again shifted lower after the federal government's tax on the biggest banks' liabilities was passed by parliament late Monday and Moody's lowered its credit rating for a dozen lenders one notch on concerns over the property market and high household debt.

QBE Insurance slumped 10%, wiping out its gains this year, after it warned higher-than-expected claims from its emerging markets operations would affect its first-half insurance profit margin.

For the day, 2.29 billion shares were traded with a value of 7.09 billion Australian dollars (US$5.37 billion), Commonwealth Securities said.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

June 21, 2017 03:09 ET (07:09 GMT)