3:00AM New York, 7:00PM Sydney – The Reserve Bank of Australia hiked interest rate by 0.25% to 7.25%, 12-year high to reign in the rising inflation.

Market Sentiment

ASX 200 index shed 0.5% or 25.5 to close at 5,380.30.

The preliminary market turnover was 1.43 billion worth $5.82 billion, with 225 stocks trading higher, 1,030 trading lower, and 298 unchanged.

Market Driver

Australia''s central bank today increased its benchmark interest rate for the second time in four weeks to reign in fast rising inflation. Food and energy costs are rising fast as international costs of crude oil and base metals have increased on the falling U.S. dollar. The recent hike in rate is the 12th consecutive increase in rates since the May of 2002.

Australian dollar may become more attractive to carry trader looking to profit from interest rate arbitrage. The gap between the U.S. interest rates and Australian rates is now 4.25%, widest in three years.

The bank raised the overnight cash rate target by a quarter to 7.25% as a measure of containing the fastest inflation since 1991. Governor Glenn Stevens said the rates had risen ``substantially'''' since mid-2007.

The revised rates sent the Australian dollar tumbling but boosted bonds, which rose as investors hoped that more rates hikes are likely in the near future.

The Australian dollar fell to US$0.9311 from $0.9376 before the decision. The yield on the two-year government bond dropped 10 basis points, or 0.1%, to 6.56%.

New Zealand is likely to keep its benchmark rate at 8.25% in a meeting on March 6th.

Gainers and losers

Of the ASX 200 index stocks, Riversdale Mining led the gainers with a rise of 8% followed by increases in Western Areas NL of 7.2%, in Coeur D''Alen-CDI of 5.5%, in Just Group Limited of 5.2%, and in Kagara Limited of 5.1%.

Of the ASX 200 index stocks, City Pacific Limited led the decliners with a plunge of 49.2% followed by losses in Allco Finance Group of 37.1%, in APN/UKA European of 22.1%, in Centro Properties of 14.3% and in Perilya Limited of 13.7%.

Allegiance responds to shareholders

Allegiance Mining NL today urged its shareholders to accept Zinifex $852.4 million takeover bid and reiterated that Zinifex''s $6.2 billion merger with Oxiana would not affect the bid.

""""We have received a large number of calls from shareholders seeking clarification as to what their options are with respect to the Zinifex Offer for their shares in Allegiance,"""" the company said in a statement.

Alliance said its shareholders could either follow the Directors recommendation or accept the final offer of $1.10 per share, which was scheduled to close at 7pm on Friday 7 March 2008.

The Zinifex Offer price is $1.10 per share, which is a 55% premium to Allegiance''s closing price of $0.71 on 14 December 2007, prior to the first Zinifex offer. Alternatively the company said shareholders could sell on-market at the prevailing price or do nothing and continue to hold shares in Allegiance.

""""However, should Zinifex acquire more than 90% of the Allegiance shares, it will be able to compulsorily acquire Allegiance shares for $1.10 per share,"""" Alliance said.