The Australian sharemarket rallied from the red to close slightly in the black after emerging market stocks staged a tentative rally and US politicians signalled unease over an armed strike on Syria.
The S&P/ASX 200 index fell 0.4 per cent in early trade but rallied to close 5.2 points, or 0.1 per cent, up at 5092.4 points as most markets traded sideways ahead of the US weekly jobless claims data today that could prove to be an important factor in US Federal Reserve tapering.
Oil prices eased as Russia also voiced opposition to an attack on Syria, with Brent crude off $US1 to $US115.80 a barrel, but they remain 5 per cent up for the week on fears of another Middle-East war.
Along with soaring fuel costs, the domestic growth outlook was dealt a hard blow by the June-quarter business investment report which included a sharp slow down in capital expenditure plans.
Mining expenditure accounted for most of the 4 per cent growth over the quarter, but future expenditure is expected to now fall one percent this financial year against proposed plans for a 15 per cent increase just three months ago.
The Australian dollar rallied to US89.70¢ as the 4 per cent increase beat forecasts for no change in spending, while government 10-year yields edged up 1.3 points to 3.918 per cent.
Westpac economist Andrew Hanlan said downgrades were evident across mining, manufacturing, and the services sector which includes housing.
“Mining investment has peaked, services sectors are on hold and manufacturing is cutting investment,” he said.
AMP Capital Investors head of investment strategy Shane Oliver said the outlook was poor and highlighted the need for further monetary easing in Australia.
“While another cut from the RBA is unlikely next week given the proximity to the election, a further easing is likely required in the next two or three months and the Australian dollar will have to fall further,” he said.
The 4.7 per cent drop in July new home sales added to the uncertainty over which sectors would take over the growth baton from mining.
Overnight US stocks gained 0.3 per cent on low volume, helped by a surge in energy stocks.
A 1.3 per cent drop in July pending home sales weighed against Fed tapering its bond purchases, although US 10-year yields still climbed 6 points to 2.77 per cent.
The Shanghai composite index was down 0.4 per cent at the close of the ASX, while in Tokyo the Nikkei index was up 0.8 per cent.
Gold dropped $US19 from its high to $US1410 an ounce and copper fell 0.5 per cent to $US7253 a tonne, while spot iron ore eased 0.1 per cent to $US138.60 tonne on Wednesday.
"A little bit of a comeback coming through,” said CommSec market analyst Steven Daghlian.
Australia’s major miners helped lift activity on the back of higher oil prices, with BHP Billiton gaining 55 cents at $35.35, and Rio Tinto up nine cents at $58.25.
Iron ore miner Fortescue was nine cents higher at $4.31.
Energy and mining were two of the hardest hit sectors a day earlier, but had turned things around and heartened investors, Mr Daghlian said.
"They’ve come back and certainly lifted things.
"That’s contributing to the improvements."
However, there were mixed performances among the big four banks.
ANZ was 17 cents lower at $29.47, Commonwealth Bank shed 20 cents at $72.05, while National Australia Bank gained four cents at $32.36, and Westpac was up 11 cents at $31.22.
Meanwhile, shopping centre giant Westfield was eight cents lower at $11.05 after a weaker Australian dollar hit its profit.
After Qantas announced it had returned to profit, its shares were 17 cents, or 13.82 per cent, higher at $1.40."I can’t remember the last time Qantas made up that sort of margin,” Mr Daghlian said.
But despite some positive news for the market - including better-than-expected capital expenditure data - the looming conflict in Syria remains a concern.
"It’s at the forefront of the minds of investors,” Mr Daghlian said.
"Despite Syria being quite a small player in the grand scheme of things when it comes to oil production, there are concerns that any sort of conflict there could potentially spread to neighbouring nations, such as Iraq."
The broader All Ordinaries index was up 5.1 points, or 0.1 per cent, at 5083.1 points.
The September share price index futures contract was up six points at 5074 points, with 21,824 contracts traded.
National turnover was 1.6 billion securities worth $4.3 billion.