The Australian sharemarket was the most optimistic among Asian markets as it bounced strongly on hopes for a temporary deal to avert a US debt default.
The S&P/ASX 200 index climbed 51.2 points, or 0.98 per cent, to 5259.1 points as the Reserve Bank board meeting minutes indicated interest rates were likely to stay on hold until next year.
The Australian dollar surged to a four month high of US95.30¢ as traders shrugged off the Reserve’s concern over the strengthening dollar.
Westpac chief economist Bill Evans said the statement was a signal to currency markets that Australian interest rates could still come down and the absence of any convincing evidence that current below trend growth was set to accelerate.
However, government 10-year yields leapt 8.5 points to a fresh 18-month high of 4.205 points as markets tended to the view that rates were more likely to rise to counter surging house prices.
Regional equity markets rallied after US Senate Majority Leader Harry Reid said he was “very optimistic” a deal could be reached to reopen the US government.
Analysts noted any deal still had to be sold to the Republican controlled US House of Representatives with less than two days before the debt ceiling was reached and just about $US30 billion to keep paying interest on bonds.
In Tokyo the Nikkei index was 0.3 per cent at the close of the ASX after Japanese industrial production fell 0.9 per cent in August.
The Shanghai composite index was off 0.1 per cent as analysts noted China’s increasing debt levels were achieving diminishing levels of growth.
Standard Bank China economist Jeremy Stevens said the correlation between credit and growth in China had broken down “as more and more credit is being used simply to refinance existing debt” and that GDP growth was likely to be slower this quarter.
“The greatest concerns rest on the risks the shadow poses to financial stability due to its close linkages to the traditional banking sector,” he said.
“Consider direct company-to-company lending where large state-owned enterprises that are able to borrow directly from banks and then on-lend the funds (at a higher interest rate) to small private-owned firms in dire need of credit.
“These firms are often under serious pressure, and are seeing their debt repayments balloon. Of course, if the final borrower defaults, the original loan to the bank is jeopardised.”
Lonsec client adviser Michael Heffernan said the prospect of a deal had buoyed investors. “That’s clearly the main factor at play today,” Mr Heffernan said.
“The US has got the money to pay the bills, they’ve just saddled themselves with an artificial construct.”
He said the local market was approaching a five year record as materials, energy, industrials and financial stocks all pushed more than one per cent higher.
Investors held on to early gains on Monday following signs that the US could avert a debt default.
Talks between Democrats and Republicans are resuming, three days before the deadline to raise the US government’s borrowing limit.
The big miners were all stronger, with BHP Billiton up 34 cents at $35.40 and Fortescue Metals was 5.8 per cent higher at $5.26.
Rio Tinto shares rose $1.55 to $63.20 after the company said it is confident of hitting its 2013 iron ore production target of 265 million tonnes subject to weather conditions.
Among the big four banks, Westpac was up 29 cents at $33.24, ANZ was up 33 cents at $31.47, Commonwealth Bank strengthened 49 cents to $73.01, and National Australia Bank was 25 cents firmer at $35.01.
Wagering firm Tabcorp was steady at $3.25 after its revenue in the September quarter rose more than three per cent on the prior corresponding period, despite tough trading conditions.
Fuel supplier and retailer Caltex had gained 23 cents to $18.52 after it said it would sell its Sydney bitumen business to a subsidiary of a Dutch commodities trader.
Telstra was seven cents higher at $5.00 as it maintained its forecasts of low single-digit income and earnings growth in the current financial year.
The broader All Ordinaries index was up 52.7 points, or 1.01 per cent, at 5295.2.
The December share price index futures contract was 43 points higher at 5250, with 17,011 contracts traded.National turnover was 1.38 billion securities worth $3.54 billion.