Global risk assets continued to rally on expectations of US, European and Chinese stimulus, dragging the Australian sharemarket to a six-week high ahead of quiet overnight session as US markets remain closed for the Independence Day holiday.
Volume remained well below average as miners led the S&P/ASX 200 index 45 points, or 1.09 per cent, up to 4172.2 points after metal prices surged on the belief the US Federal Reserve would soon resort to “money printing” to revive sagging growth.
Bellwether industrial metal copper pared its overnight 2.5 per cent rally, slipping 0.9 per cent to $US7750 a tonne, while gold eased $US4 to $US1616 an ounce.
The sharemarket rally gained steamed after the Australian dollar retreated from a fresh two-month high of $US1.0330 reached after May retail sales beat forecasts with a 0.5 per cent increase, reducing the chance of an August rate cut. It was trading at $US1.0295 at the close of the ASX.
The Shanghai composite index was off 0.3 per cent at the close of the ASX and Japan’s Nikkei index was up 0.4 per cent.
Shrugging off the weak growth outlook, offshore markets also rallied on very low volume, with the S&P 500 index gaining 0.6 per cent, and European stocks up 1.2 per cent on average.
“In a more traditional world, policy easing in response to lower growth would see risk appetite lower until such point that policy easing neared its end,” National Australia Bank currency strategist Emma Lawson said. “We seem to now skip to the final phase – having gone through the first phase quite some time ago.
“The initial phases of asset purchases did provide liquidity and there was the demand to use that liquidity to go out and seek returns.
“Diminishing returns or “pushing on a string” isn’t really occurring as a possibility to the markets at present, trained as they are to see renewed liquidity injections as only positive,” she said.
Spanish bonds eased 13 points to 6.25 per cent, and attention is now focussed on tonight’s bond auction to see if more positive sentiment from the EU summit will hold.
Writing in a client newsletter, Professor Michael Pettis from Peking University said Spain’s temporary bailout of “massively insolvent banks”, its uncompetitive economy, and the fact that the country was caught in the downward spiral typical of debt crises in which every sector of the economy were are acting in ways that “systematically” undermined growth and creditworthiness.
“Nothing has changed fundamentally in Europe in the past few weeks and there is no reason to assume that the crisis is on its way to being resolved,” he said.
The broader All Ordinaries index had lifted 47.4 points, or 1.14 per cent, to 4213.8 points.On the ASX 24, the September share price index futures contract was up 41 points at 4139 points, with 19,511 contracts traded, according to preliminary calculations.
CMC Markets senior trader Tim Waterer said the Australian market had followed a positive lead from markets in the United States.
US stocks were boosted on Tuesday as the Commerce Department said factory orders increased 0.7 per cent in May from April while US car companies said sales rose in June.
European stocks and the euro rose on prospects that central banks would act to boost economies.
"The rally today has been ignited mainly by the better US data overnight,” Mr Waterer said.
"There’s also better sentiment, with things looking a bit rosier in Europe."
He said improved commodity prices - there were significant rises for gold and oil - had helped boost the materials sector, which led the local bourse higher on Wednesday.
In the resources sector, global miner BHP Billiton rose 67 cents to $32.47, and Rio Tinto was $1.55 higher at $58.97.
Origin Energy was 42 cents richer at $12.75 after it was announced that a massive $23 billion gas project in Queensland - in which Origin is a joint-venture partner - is to be expanded.
Queensland’s Linc Energy nudged up one cent to 78 cents. Linc axed 60 jobs as it aims to achieve a cash profit of $15 million in the 2012/13 financial year.
Among the major banks, ANZ was 11 cents higher at $22.37, National Australia Bank improved 15 cents to $23.83, Westpac eased two cents to $21.53, and Commonwealth Bank added 27 cents to $53.59.
Among other stocks, airline Virgin Australia was steady at 37.5 cents. Virgin Australia carried more domestic passengers than its rival Qantas over the 12 months to the end of May - a first for the industry’s traditional number two.
Casinos operator Echo Entertainment was three cents higher at $4.33 as the jockeying for position by various stakeholders continued, with James Packer’s Crown seeking regulatory approval to lift its stake in Echo to 25 per cent.Preliminary national turnover was 1.37 billion securities worth $3.39 billion, with 679 stocks up, 229 down and 325 unchanged.