Australia shares drop 2.5% as virus anxiety resurfaces, NZ slips

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* S&P lowers outlook on Australia’s AAA rating

* Fitch Ratings downgrades “Big Four” banks

* Parliament set to pass $80 bln stimulus plan

* Treasury Wine mulls Penfolds demerger, shares up 10%

By Sameer Manekar

April 8 (Reuters) – Australian shares dropped more than 2% on Wednesday, as concerns of a massive economic slump due to the coronavirus pandemic coupled with an outlook downgrade on the local economy and banking sector drove investors away from risky assets.

The S&P/ASX 200 index was down 1.9% at 5,152.5, as of 0035 GMT. Earlier in the session, the index slumped as much as 2.5%.

Global ratings agency S&P lowered its outlook on Australia’s ‘AAA’ rating to “negative” from “stable” in anticipation of a “material” weakening in the government’s debt position as it splashes out a large fiscal stimulus package.

The Australian parliament is set to pass an emergency A$130 billion ($80 billion) stimulus package. The decision comes amid predictions of a “very large” economic contraction in the current quarter by the central bank, and a spike in the unemployment rate.

“Government stimulus is about delaying the inevitable blow out in unemployment that started to rise in 2019. We are now going to have a substantial pop in unemployment, and once again in September as the subsidy rolls out,” said Mathan Somasundaram, strategist at brokerage Blue Ocean Equities.

The banking sector was the biggest laggard in the index, losing as much as 4.5% a day after the Australian Prudential Regulation Authority asked banks and insurers to consider deferring dividend payouts and Fitch Ratings downgraded all “Big Four” banks on coronavirus risks.

Reversal in the U.S. equities overnight weighed on the Australian open, and was exacerbated by Fitch Ratings downgrading Australian banks, said Michael McCarthy, chief market strategist at CMC Markets.

Additionally, the prudential regulator on Wednesday temporarily suspended issue of new banking, insurance and superannuation licences for at least six months.

Top lender Commonwealth Bank of Australia and Westpac Banking Corp dived 3.8% and 5.1%, respectively.

Among the mining sector, global miners BHP Group and Rio Tinto lost as much as 1.9% each.

Not helping sentiment was wild volatility in the oil market, with domestic energy stocks being among the top losers in the index and slipping more than 2%.

Fuel retailer Caltex Australia shed up to 4.3%, while Woodside Petroleum lost more than 2%.

Meanwhile, Treasury Wine Estates Ltd marked its biggest intraday gain since August 2016, after the winemaker said it will consider spinning off its Penfolds wine business into a separate listed company.

In New Zealand, the benchmark S&P/NZX 50 index fell 0.3% to 9,780.1 after gaining as much as 1% earlier in the session.

NZ-listed shares of Westpac Banking Corp slipped 4.4%, while Fisher & Paykel Healthcare Corp lost 3.4%. (Reporting by Sameer Manekar in Bengaluru, Editing by Sherry Jacob-Phillips)

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