The Australian sharemarket hit a fresh four-and-a-half year high after better than expected capital expenditure data underpinned the growth outlook but also indicated growth remained two-speed.
Sentiment was also buoyed by US durable goods data and US Federal Reserve chairman Ben Bernanke’s Congressional testimony where he reiterated the benefits of quantitative easing policies while downplaying the risks of an eventual withdrawal of excess liquidity.
The S&P/ASX rose steadily throughout the session but dipped at the close on heavy volume to finish 67.4 points, or 1.34 per cent, up at 5104.1 points, with banks in demand despite the swing to a neutral yield outlook delivered by the capex data.
With some economists calling the bottom in domestic rates markets are still pricing in two more cuts this year but pushed them out to June after the capex survey indicated 2013/2014 spending of $152.5 billion, marginally better than the consensus forecast, but enough to keep the economy ticking over.
However, the outlook for manufacturing remains bleak where a 3 per cent drop is forecast compared to an 11 per cent increase in mining and 12 per cent in services.
“Interestingly, without the 2013/14 first estimates which are notoriously unstable (we use a realisation ratio for the key services sector of 1.45), this survey would look particularly weak indicating that the rate cut strategy had not been working,” Westpac chief economist Bill Evans said.
“Of course this weakness has provided a low starting point to allow an apparently solid lift off in spending growth in 2013/14.”
HSBC chief economist Paul Bloxham said further improvement in the non-mining sectors was expected in coming quarters, with “timely indicators providing signs that conditions are already improving as monetary policy gets traction”.
The Australian bounced from its overnight low of $US1.0185 to $US1.0272 on the neutral rate outlook and US dollar weakness.
In Tokyo the Nikkei index jumped 2.3 per cent after monetary “dove” Haruhiko Kuroda was nominated by the government as the next Bank of Japan governor.
The Shanghai composite index was up 0.6 per cent at the close of the ASX.
Overnight the US S&P 500 gained 1.2 per cent after durable goods orders fell 5.2 per cent on volatile aircraft orders, but fuelling a bullish outlook, non-defence capital goods orders jumped 6.3 per cent.
The broader All Ordinaries index was up 67.3 points, or 1.33 per cent, at 5120.4. On the ASX 24, the March share price index futures contract was 67 points higher at 5087 with 32,846 contracts traded.
IG Markets dealer Chris Weston said the Australian market followed Wall Street higher after an Italian bond auction posted strong results.
“We saw a much improved Italian bond auction, which gave a green light to traders globally to buy stocks in the face of a dark political situation there,” he told AAP.
“There’s no reason why this market can’t keep going higher.”
The big four banks benefited, with the Commonwealth Bank closing $1.26, or 1.91 per cent firmer, at $67.27 and Westpac adding 57 cents, or 1.89 per cent, to $30.77.
National Australia Bank put on 17 cents to $30.20 and ANZ gained 44 cent to $28.72.
Supermarket giant Woolworths was closed 92 cents higher at $34.93 after announcing a first half net profit rise of 19 per cent to $1.15 billion.
Retailer Harvey Norman added 21 cents, or 9.21 per cent, to $2.49 despite a 36 per cent drop in half year profit from weaker sales and falling property values.
Mr Weston said the strong performance of the discretionary sector boosted investor confidence in Harvey Norman, as it forecast strong sales growth.
“The discretionary sector’s clearly the best performing sector this year,” he said.
“It’s been ages since we’ve seen any positive rhetoric coming from that company.”
The spot price of gold in Sydney at 1.20pm was $US1597.10 per fine ounce, down $US13.07 from yesterday’s local close of $US1610.17 per ounce.
National turnover was 2.24 billion securities worth $7.13 billion, with 603 stocks up, 423 down and 352 steady.