The Australian sharemarket touched a four-month high on Chinese and domestic growth optimism but the low volumes reflected increasing investor caution as global borrowing costs edged back towards two-year highs.
The S&P/ASX 200 index followed the firmer lead from Wall Street, climbing 19.7 points, or 0.38 per cent, to 5201.2 points, ignoring further hints from US Federal Reserve officials the central bank was planning to reduce its bond purchasing program that has been the main driver of stock gains for the past four years.
Although Friday's weaker than forecast US jobs data cast doubt on a change to the Fed's policy, US 10-year yields were steady at 2.92 per cent after San Francisco Fed President John Williams said the latest jobs report was consistent with forecasts for gradual improvement and that "we are continuing to get closer to the Fed's market of substantial improvement in the labour market".
Despite the higher US yield outlook the US dollar lost ground against most major currencies, and the Australian dollar climbed 0.6Â¢ to US92.80c.
Australian government 10-year yields pared yesterday's fall, rising 4.7 points to 4.117 per cent, after August business confidence bounced back to average levels and markets trimmed rate cut expectations.
"The combination of global growth and commodity sector improvement, stronger activity in China since mid-year, greater stability in EM over the last week, better data in Australia recently suggesting the RBA stays on hold, and record short AUD positioning suggest risk is high of a further squeeze up in the AUD towards US95c," Royal Bank of Scotland currency strategist Greg Gibbs said.
The Shanghai composite index was up 0.6 per cent at the close of the ASX, while in Tokyo the Nikkei index gained 1.6 per cent.
More to come