Hopes for at least a short term fix to the US debt ceiling crisis sent the Australian sharemarket sharply higher, but currency and credit markets reflected a more cautious outlook.
The S&P/ASX 200 index climbed 1.8 per cent at its peak before settling to close 83.7 points, or 1.63 per cent, at 5230.9 points as the fresh round of talks between Republican and Democrat leaders in the US failed to deliver a deal. The sharemarket gained $22.2 billion in value.
Domestic investors poured into stocks as they wagered crisis would soon be resolved and that the lift in domestic business and consumer confidence would drive markets to fresh highs.
Credit Suisse strategist Damien Boey cautioned that while there had been a lift in post-election confidence, the economic activity indicators were yet to respond to the bullish outlook in equity markets.
He said growth and profits would be capped by a 5 to 10 per cent decline in business capital expenditure over the next few years and slack retail sales growth of one to 2 per cent, leaving real domestic demand flat.
“The dynamics are really precarious,’ he said.
Overnight the S&P 500 index soared 2.1 per cent on reports that Republicans had offered to extend the debt ceiling for six weeks, but after the close conflicting headlines sent index futures tumbling one per cent before reversing back to the closing levels.
The Australian dollar bounced US0.4¢ to US94.70¢, but Australian 10-year yields were little changed at 4.15 per cent, along with global benchmark US 10-years at 2.67 per cent.
Gold remained under pressure at $US1292 an ounce after hitting a low of $US1281 an ounce, but copper bounced one per cent to $US7170 a tonne.
Yesterday spot iron ore rose 0.9 per cent to $US133 a tonne.
The Shanghai composite index climbed 0.8 per cent and in Tokyo the Nikkei index was up 1.2 per cent at the close of the ASX.
Economists noted the effect of the US government shutdown was starting to hit the broader economy, with US weekly jobless claims soaring 66,000 to 374,000.
Economists are forecasting the world’s biggest economy could lose 0.5 percentage points of growth if the shutdown extended for another two weeks.
“Investors are piling back in,” Australian Stock Report head of research Geoff Saffer said.
“Today’s gains are being driven by the first sign of compromise in the US debt ceiling political deadlock.”
Small and mid-sized companies outperformed the wider market, while financial stocks benefited from the change in sentiment, he said.
Westpac gained 79 cents, or 2.5 per cent, to $32.99, ANZ added 74 cents, or 2.4 per cent, to $31.29, National Australia Bank rose by 70 cents, or 2.1 per cent, to $34.87 and Commonwealth Bank was $1.52 higher, or 2.2 per cent, at $72.32.
Among the big miners, BHP Billiton was up 51 cents at $35.13, Rio Tinto gained $1.37 to $61.58 while Fortescue Metals added 12 cents to $5.00.
Telstra was five cents higher at $4.97.
UGL shares rose after its engineering chief Russell Waugh stepped down because of his alleged connection to former employer Leighton Holdings’ bribery scandal. UGL added 23 cents, or 3.1 per cent, at $7.83.
At the close on Friday, the benchmark S&P/ASX200 index was up 83.8 points, or 1.63 per cent, at 5230.9.
The broader All Ordinaries index was up 82.6 points, or 1.61 per cent, at 5228.8.
The December share price index futures contract was 92 points higher at 5225, with 27,350 contracts traded.National turnover was 1.8 billion securities worth $4.4 billion.