Rate cut sends JSE lower

Johannesburg - The JSE extended its losses in late afternoon trade on Thursday, falling by a further by almost 1.5% on the Reserve Bank's decision to cut interest rates by 50 basis points and weaker jobless claims data in the US, traders said.

At 16:02 the JSE's all share index had lost 2.32%, from a loss of 0.80% just before the Reserve Bank's announcement.

"The market is disappointed at the decision because we were hoping for a bigger cut and that sparked a sell off," a local equities trader said.

"It's a case of buy the rumour, sell the fact," another trader said, noting that the market had expected a 100 basis point cut.

He also noted that the jobless claims data in the US had also had a negative impact on markets, which in turn had pressured that local bourse.

"Dow futures are down and that is signalling a weaker US open," he said.

The South African Reserve Bank's (Sarb's) monetary policy committee (MPC) on Thursday decided to reduce the repo rate by 50 basis points to 11.5% with effect from December 12 2008.

This was in line with the I-Net Bridge consensus forecast.

Of the 16 economists polled, nine had expected a 50 basis point reduction, while two expected a cut of 100 basis points. Five economists spoken to expected rates to remain unchanged.

Dow Jones Newswires reports that jobless claims spiked 58 000 to 573 000, a 26-yr high, in the week ended December 6.

Economists expected claims would rise by 24k. The four-week average also reached a nearly 26-year high, rising 14 250 to 540 500 from the previous week's revised average of 526 250.

Several factors contributed to the elevated numbers, a labour department analyst said.

The week after Thanksgiving traditionally shows the largest increase in unadjusted claims filings, a factor that combined with administrative catch-up related to the holiday and a low seasonal adjustment hurdle drove up numbers.

- I-Net Bridge