The Australian sharemarket was spared a weaker finish after reports the Whitehouse would announce the new US Federal Reserve chairman tonight trumped US debt default fears that led to the biggest loss on Wall Street in 11 months.
The S&P/ASX 300 index opened 0.6 per cent down after US stocks fell 1.2 per cent, but domestic stocks rallied to close 3.5 points, or 0.07 per cent, higher at 5153 points on the reports that vice-chairman Janet Yellen, a noted monetary policy “dove”, was set to become the most powerful central banker in the world.
US stocks tumbled as both US Democrats and Republicans refused to budge from their hardline positions, raising the prospect that any deal to raise the debt ceiling was likely to at best be reached next week.
However, the confidence sapping standoff could extend further as US economists have revised the projected default date to October 25 when the US Treasury would finally run out of cash if bond interest payments were prioritised over all other payments.
Credit markets reflected the looming cash crunch as short term borrowing rates soared, with one month rates doubling to 0.3 per cent.
While President Barack Obama warned of a “very deep recession” from a temporary debt default, Asian markets were soothed by expectations that the budget impasse would leave Fed chairman Ben Bernanke and his replacement next year little option but to maintain the $US85 billion a month bond purchasing program.
The Australian dollar slipped from an overnight high of US94.70¢ to US94.30¢, while government 10-year yields rose 1.5 points to 4.092 per cent.
Denting hopes for a strong Christmas spending spree, the Westpac consumer confidence index showed the post-election confidence boost was already fading. The index lost 2.1 per cent, with unemployment expectations rising 0.6 per cent.
The Shanghai composite index was off 0.1 per cent at the close of the ASX while in Tokyo the Nikkei index also bounced from a steep early loss to trade 0.7 per cent up at the close of the ASX.
However, underscoring the fragile state of the global economy and the risks from the protracted US government shutdown, the HSBC emerging markets index edged up to 50.8 points, but India posted the steepest drop in activity since March 2009, while Chinese growth remained “subdued”.
Gold lost $US8 to $US1317 an ounce, copper slipped 0.2 per cent to $US7228 a tonne and spot iron ore rose 0.2 per cent to $US131.70 a tonne yesterday.
IG market strategist Evan Lucas said gains by global miner BHP Billiton and major bank Westpac had helped hold the local bourse above water.
Upgrades on iron ore numbers from some US investment banks had also boosted iron ore miners like Fortescue and Atlas Iron.
"It’s a relatively good day considering how strong we saw the US markets off overnight,” Mr Lucas said.
Gains in the materials, consumer staples and industrial sectors suggested that investors still saw fundamental value in stocks despite the uncertainty generated by the situation in the US.
"It is a good sign for the market that once we are clear of this issue going on in Washington, things could actually be looking up,” Mr Lucas said.
He said there had been no change in the political rhetoric surrounding the US political deadlock that would suggest that the US government shutdown was about to end, or that the US debt ceiling would be lifted soon.
"So get ready for more volatility,” Mr Lucas said.
In the resources sector, global miner BHP Billiton gained 13 cents at $34.83, Rio Tinto eased five cents to $60.20, Fortescue Metals improved nine cents to $4.78, and Atlas Iron jumped eight cents to 97.5 cents.
Gold miner Newcrest rose 10 cents to $10.93 after announcing the departures of its chairman and chief executive, following this year’s disastrous write-downs.
Among the major banks, ANZ nudged up one cent to $30.45, National Australia advanced seven cents to $34.26, Commonwealth Bank shed eight cents to $71.02, and Westpac found 19 cents at $32.17.
The broader All Ordinaries index was up 3.5 points, or 0.07 per cent, at 5151.6 points.
The December share price index futures contract was down four points at 5138.0 points, with 18,881 contracts traded.
National turnover was 1.24 billion securities worth $2.94 billion.