Fears of US Federal Reserve tapering its bond purchasing program initially pushed the Australian sharemarket into the red, but hopes domestic confidence would rise after the Federal election this weekend sparked a late rally that left it marginally firmer.
The S&P/ASX 200 index slipped 0.4 per cent in the morning as global borrowing costs surged overnight following firmer US data, but it recovered to close 2.5 points, or 0.05 per cent, up at 5145 points.
US 10-year bonds yields hit a fresh two-year high of 3 per cent and Australian government 10-years jumped 8.6 points to an 18-month high of 4.157 per cent, after the US non-manufacturing ISM rose to an 8-year high of 58.6 in August from 56.0 in July, while jobless claims fell 9000 to 323,000 to continue the downward trend in place over the past two months.
Overnight the US S&P 500 index started firmed but dropped back to close marginally higher as markets started to come to terms with surging long-term borrowing costs
The US dollar gained further ground against the euro and gold fell $US20 to $US1365 an ounce, but the Australian dollar geld steady at US91.30¢ as the Reserve Bank’s neutral stance conveyed this week lent support.
However, indicating the strong growth headwinds for the domestic economy, the AiG performance of construction index contracted for the 39th straight month as it eased to 43.7 points in August from 44.1 in July.
“The AUD recovery reflects the RBA reluctance to further cut rates with a housing market recovery gaining momentum, the recent improvement in Chinese activity and firmer commodity markets since June, and a bit of stability in EM currencies,” Royal Bank of Scotland currency strategist Greg Gibbs said.
“We doubt there will be much improvement in business confidence (post the election) and this will limit the potential for a further significant recovery in AUD.”
In Tokyo the Nikkei index was off 1.4 per cent while the Shanghai composite index was up 0.7 per cent at the close of the ASX.
The broader All Ordinaries index was up 5.6 points, or 0.11 per cent, at 5144.On the ASX 24, the September share price index futures contract was steady at 5138, with 18,939 contracts traded.
RBS Morgans director of equities Bill Chatterton said traders were waiting for an election outcome before putting money into growth assets.
"We’re just marking time,” Mr Chatterton said.
"The main reason for the low volumes and steady market is the election."
The absence of strong leads from overseas had also contributed to a lacklustre performance, he said.
The local market finished broadly flat over the week.
Resources stocks were mixed, with BHP Billiton down 12 cents to $35.16 and Rio Tinto was 10 cents lower at $60.90.
Iron ore miner Fortescue reversed the trend, gaining 12 cents to $4.54.
The major banks were all higher, with National Australia Bank three cents higher at $32.77, ANZ up nine cents to $29.69, Commonwealth Bank rose 24 cents to $73.16 and Westpac was up 16 cents at $31.64.
Telstra was down two cents at $4.80.
National turnover was 1.4 billion securities worth $4 billion.