By Victoria Batchelor
/www.bloomberg.com/
Sydney, Dec. 2 (Bloomberg) -- Australian company profits rose almost double expectations in the third quarter and inventories of unsold goods increased, prompting some economists to raise their forecasts for economic growth.
Companies' gross operating profits rose 4.7 percent following a 1.3 percent drop in the previous three months, the Australian Bureau of Statistics said. Profits were expected to increase 2.5 percent, according to the median forecast of 20 economists surveyed by Bloomberg News. Inventories gained 0.3 percent.
Bonds pared gains and stocks rose on expectations a pickup in profit will prompt companies to spend more on equipment, machinery and factories in the coming year. That will underpin Australian economic growth as a global slowdown cuts exports and a residential construction boom slows.
``Today's reports suggest domestic demand should continue to expand at a robust pace in coming months,'' said Tom Kenny, chief economist at Nomura Australia Ltd. ``We have revised up our third- quarter growth estimate''
He expects the economy to expand to 0.9 percent in the third quarter, up from his previous forecast of 0.7 percent.
Gross operating profit measures earnings before tax, interest, depreciation and amortization. It excludes asset sales and foreign exchange gains or losses.
Pacing the gain in earnings, retailers' profits surged 36.4 percent in the quarter and construction companies' earnings jumped 23.8 percent.
Driver of Growth
``It's good news because profits need to be rising for business plans to increase investment to come true,'' said Michael Blythe, chief economist at Commonwealth Bank of Australia. ``Business investment will to be a key driver of growth as the drought cuts farming, and housing is expected to slow.''
A separate index of manufacturing rose 4.5 points to a reading of 60.8 points in November as companies reported a surge in pre- Christmas orders, the Australian Industry Group said. A reading above 50 points indicates manufacturing is expanding.
From a year ago, inventories rose 0.2 percent and profits surged 17.8 percent.
The yield on the 7.5 percent bond maturing July 2005 rose 2 basis points to 5 percent at 2:25 p.m. Sydney time. Earlier, the yield fell as low as 4.91 percent. A basis point is 0.01 percentage points. The Australian dollar was little changed at 55.97 U.S. cents.
The S&P/ASX200 stock index rose 8.1, or 0.3 percent, to 3069.7. Earlier, it touched 3072.10, the highest since Nov. 7.
The inventories and profit figures provide the last building blocks for the make-up of economic growth in the third quarter.
The economy probably expanded 0.9 percent from the previous three months, according to the median forecast in a Bloomberg News survey of 23 economists. The economy probably grew 3.4 percent from a year earlier.
The gross domestic product report will be released Wednesday.