The Australian sharemarket soared 1.2 per cent to a fresh 21-month high as demand for high yielding stocks reached fever pitch while small caps and miners were left lagging far behind.
Dividend hunters dived into healthcare stocks and the major banks, driving the S&P/ASX 200 index to close 53.8 points, or 1.11 per cent, up at 4889 points, with miners finishing little changed on average despite solid Chinese industrial profits over the weekend.
Demand for large cap stocks across many sectors was driven by a blend of factors, with hints of safe haven interest, an easing yield outlook and a rebound in business confidence all combining to fuel the buying.
"It's quite encouraging to see the market put in such a performance," IG Markets analyst Stan Shamu said.
"But, the worrying factor is the defensive stocks are outperforming the general market, which generally points toward some sort of caution or lack of confidence."
The four major banks shrugged off ratings agency Moody's downgrade of five Canadian banks last night which underlined domestic funding risks from exposure to "increasingly indebted" consumers.
National Australia Bank head of fixed income research Michael Bush said the Canadian banks' downgrades would inevitably turn some attention towards Moody's ratings of the Australian banks.
However, he noted that Moody's had stated that "Australia's major banks are well positioned to withstand significant loan losses from any unanticipated economic downturn, save one which caused losses unparalleled in the Australian context".
He said a one notch downgrade was not out of the question as Moody's concerns lay with reliance on offshore funding.
The Shanghai composite index was little changed at the close of the ASX and Japan's Nikkei index pared a 0.9 per cent to trade 0.4 per cent up.
Overnight the S&P 500 index finished 0.2 per cent down after pending home sales missed forecasts and December durable goods orders beat expectations but only following a surge in airline orders, denting widespread claims that the US and Europe were over the worst of the GFC.
The weaker housing data capped the US dollar rally and the Australian dollar bounced from its overnight low of $US1.0385 to $US1.0445.
The dollar was supported by the lifted in the 13 point bounce NAB business confidence index off its weakest level since 2009, although the business conditions index remained poor. NAB noted that forward indicators remained weak, with capacity utilisation and capital expenditure weak and credit demand back to record low levels.
"There is a general trend in foreign exchange markets at the moment for an unwind of global safe-haven conditions and the Aussie dollar, as a quasi safe-haven currency over the last year, is under pressure somewhat as a result of that," ANZ currency strategist Andrew Salter said.More to come