Australia's Leading Economic Index +1.7% Annualized In Aug

SYDNEY -- A leading index of the Australian economy released Wednesday grew at an annualized rate of 1.7% in August compared with a contraction of 1.0% in July.

The index of where the economy is headed in the next three to nine months is compiled monthly by Westpac Banking Corp. and Melbourne University's Institute of Applied Economic & Social Research.

A coincident index, which is a broad measure of current economic activity, contracted at an annualized rate of 0.1% in August, compared with a contraction of 0.2% in July.

"The pace of recovery in the growth rate of the Leading Index has been remarkable," said Westpac Chief Economist Bill Evans.

Improved labor market conditions, rising U.S. industrial production, climbing share prices and corporate profits have contributed strongly to the improvement in the index.

Evans said the clear signal from the index is that prospects for 2010 are brightening and the Reserve Bank of Australia needs to move away from its emergency interest rate settings.

Evans said he sees some risk that the RBA may step up the pace of rate hikes at its Nov. 3 policy meeting with a 50 basis point hike.

The release of the September quarter inflation data on Oct. 28 may show that the quarterly pace of underlying inflation has actually picked up, Evans said.

In those circumstances, a decision to raise rates by 50 basis points in November "would not surprise", he added.