The Australian sharemarket hit a near four-month high of 4400 points, buoyed by upbeat Reserve Bank minutes and renewed speculation Chinese authorities were planning stimulus packages, before strong words of caution from the Bank of Japan about risks in China halved gains.

Outperforming the flat lead from Wall Street, the S&P/ASX rose almost one per cent in afternoon trade before slipping to close 19.1 points, or 0.44 per cent, up at 4383.4 points.

The slide was prompted by Bank of Japan deputy governor Kiyohiko Nishimura saying that China was entering the “danger zone” for financial crisis because of its “bubble” property prices, steep rise in bank loans and aging demographics that could all collide.

The Shanghai composite index was up 0.3 per cent at the close of the ASX after the central bank injected record funds into the banking system and the Economic Information Daily reported China might issue new policies to boost consumption this year.

Japan’s Nikkei index was flat.

Yesterday spot iron fell another 0.8 per cent to $US109.30 a tonne, while steel rebar futures lost 0.5 per cent today. Paring a 1.1 per cent overnight drop, copper rose 0.3 per cent to $US7490 a tonne.

The Australian dollar climbed 0.3¢ to $US1.0480 after the Reserve Bank board meeting minutes revealed growth at trend level of 3.5 per cent this year would mean rates stayed on hold for the next few months.

However, Westpac chief economist said it was notable that the Reserve’s 2013 and 2014 forecasts had not been increased from 3 per cent.

“That implies that the momentum which has built up in the first half of 2012 is not expected to be sustained in 2013 and 2014,” he said.

“We expect to see a slowing in spending momentum; a steady rise in the unemployment rate; and ongoing uncertainty in the global economy. Those three conditions are likely to justify further policy easing by the December quarter.”

Overnight the European Central Bank and German officials dismissed media reports that the ECB would cap regional borrowing rates through unlimited purchases of Spanish and Italian bonds.

The ECB said it would “act within its mandate” and that the reports were misleading, while Germany’s Bundesbank wrote in its monthly report that “government bond purchases by the Eurosystem are to be seen critically and entail significant stability risks”.

The Bundesbank report said decisions of solvency risks should be “anchored in financial policy, meaning with the governments and parliaments, and should not occur via central bank balances”.

The broader All Ordinaries index was up 18.9 points, or 0.43 per cent, at 4410.8. On the ASX 24, the September share price index futures contract was 24 points higher at 4372 with 25,590 contracts traded.

National Australia bank jumped 46¢ to $25.37, ANZ gained 17¢ to $24.95, Commonwealth Bank was unchanged at $55.80 and Westpac lost 10¢ to $24.87.