News: Australia shares jump on rate cut prospects after weak inflation

MELBOURNE/WELLINGTON, April 27 (Reuters) - Australian shares jumped 1 percent by midday on Wednesday, propelled by the big banks after surprisingly weak local inflation heightened expectations the central bank would cut interest rates at its meeting next week.

The S&P/ASX 200 index (xjo) climbed 53.9 points to 5,274.5 by 0239 GMT, near its highest level since early January.

New Zealand's benchmark S&P/NZX 50 index (nz50) was trading down 0.2 percent or 14.7 points at 6,781.00.

The Australian market had been up around 0.3 percent ahead of the March quarter inflation data, then jumped when the report showed underlying annual inflation slowed to 1.6 percent, well below the Reserve Bank of Australia's target.

That saw the market pricing in chances of a rate cut going up to around 40 percent, from 13 percent earlier, CommSec market analyst Steven Daghlian said.

"The (share) market really started to take off after that. It's not a certainty there will be a rate cut, but it has increased the chances there will be one," Daghlian said.

Westpac Banking Corp (WBC), National Australia Bank (NAB) and Australia and New Zealand Banking Group (ANZ) all rose around 1 percent, while Commonwealth Bank of Australia (CBA) was flat.

In early trade, Fortescue Metals Group (FMG) had been among the top gainers, up as much as 5.4 percent, after flagging it was set to cut debt further, repaying $577 million in notes which would reduce its interest costs by $48 million.

BHP Billiton (BHP) and oil stocks benefitted from a rise in oil prices to their highest level this year, with BHP up 0.9 percent, Santos (STO) rising 3.2 percent, and Origin Energy (ORG) up 3.9 percent.

On the down side, detention camp operator Broadspectrum Ltd (BRS) fell 4.9 percent after the Supreme Court of Papua New Guinea ruled that Australia's detention of asylum seekers on PNG's Manus Island was illegal.

Australia's biggest dairy producer, Murray Goulburn Co-operative Co (MGC) sank more than 35 percent to a record low after slashing its profit forecast on weaker than expected sales to China.

In New Zealand, Fisher & Paykel Healthcare (FPH) weighed on the index, shedding 3.4 percent, likely hurt by the higher New Zealand dollar.

In the other direction, Orion Health Group (OHE) was trading up 2.0 percent. Earlier the company announced a new contract in Canada.