Sharemarket soars on short selling ban and bale-out package: Economy roundup

Investors are returning to the Australian sharemarket with renewed confidence following the announcement of a ban on short selling and the news of the US Government’s $US700 million financial sector bale-out.

Investors are returning to the Australian sharemarket with renewed confidence following the announcement of a ban on short selling and the news of the US Government’s $US700 million financial sector bale-out.

The benchmark S&P/ASX200 has rallied up 170.2 points, or 3.5% to 4974.3 at noon AEST, despite being delayed for an hour while the ASX clarified the short selling ban.

The ban on short selling will last for at least a month. ASIC hopes it will serve as a catalyst for improving investor confidence, and echoes similar bans in both Europe and the United States.

Wall Street jumped another 3% in trade on Friday night as more details emerged about the US Government’s $US700 billion bale-out package that it hopes will prevent the collapse of more banks and financial services companies.

Under the package, the US Government will buy mortgage debt from struggling banks. These assets will be managed by private asset managers at the direction of US Treasury Secretary Henry Paulson. Cash from the liquidation of the assets will be returned to US taxpayers.

Paulson and US Federal Reserve chairman Ben Bernanke said the Government had little choice but to launch the rescue plan. “If we don’t get this, it will be nothing short of a disaster for our markets,” Bernanke says.

“If it doesn’t pass, then heaven help us all,” Paulson added.

Sounds reassuring, doesn’t it?

This do-or-die package will have to be paid for by the US taxpayer and will result in the US Government’s credit limit being extended to $US11.3 trillion.

Back at home, investors were less than thrilled with news that Seven Network is likely to suffer a 40% to 50% drop in pre-tax profit for the six months to the end of December.

”Given the volatility in markets, it is practically impossible to reasonably forecast the earnings for this current half (ending December 2008),” the group told Fairfax. It also says market turmoil has affected the value of its investment portfolio.

The Aussie dollar has strengthened after news of the bale-out in the US, closing at US82.99 cents on Friday before reaching US84 cents this morning. The dollar was trading at US82.9 cents at 11:35am AEST.

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