The Australian sharemarket shrugged aside the manic US debt ceiling talks to reverse early losses as investors poured cash into miners.
Overnight hopes of a US deal were dashed and the S&P/ASX 200 index fell 0.5 per cent at the open, but Senate Leader Harry Reid’s renewed “optimism” sparked a rally that left the index 3.7 points, or 0.07 per cent, up at 5262.9 points as bullish sentiment continued to ignore warnings of a renewed slowdown in China.
Overnight US stocks fell 0.7 per cent after the US edged closer to a debt default and ratings agency Fitch placed the US credit rating on watch for a downgrade.
Fitch said it continued to believe that the debt ceiling would be raised soon, but the political brinkmanship and reduced financing flexibility could increase the risk of a US default.
“We continue to see very little chance that a resolution will be found this week. Indeed, even if material progress towards a bipartisan agreement is made in the next 36 hours, the fractious state of the political status quo could delay a final agreement well into next week as opponents use any and all procedural delays available,” Westpac economist Elliot Clarke said.
“This would take the length of the shutdown to over three weeks, and likely see Q4 growth reduced by around 0.5 percentage points, in annualised terms to around 1 per cent annualised, although the indirect impact of falling confidence of both business and consumers could have a much larger impact.”
The Australian dollar was little changed at US95.20¢ but government 10-year yields leapt 8 points to an 18-month high of 4.27 per cent to follow the 5 point rise in benchmark US yields to 2.73 per cent.
Investors also continue to price in the end of the domestic rate cut cycle on expectations the previous rate cuts will finally deliver some growth over the next 12-months.
The Shanghai composite index fell 1.4 per cent at the close of the ASX after JPMorgan analysts advised reduced stock holdings because the growth spurt was running out of steam more quickly than anticipated.
In Tokyo the Nikkei index was marginally higher.
Gold climbed $US10 to $US1280 an ounce, copper climbed 0.6 per cent to $US7280 a tonne and yesterday spot iron ore rose 0.3 per cent to $US133.60 a tonne.
IG market strategist Stan Shamu said it appeared some sort of deal to avoid a debt default was close, with reports that a clean Senate bill vote would go ahead on Wednesday.
"I think the investment community is cautiously optimistic that something will get done and we’ll see the extensions we need come tomorrow’s session,” he said.
Resources stocks were the best performers on Wednesday, with iron ore miners the standouts.
Rio gained 91 cents, or 1.4 per cent, to $64.11 and BHP Billiton added 38 cents, or 1.1 per cent, to $35.78.Pure play iron ore miners did even better, with Fortescue Metals up 14 cents, or 2.7 per cent, to $5.40, Mt Gibson Iron up five cents, or 6.5 per cent, to 82 cents and Atlas Iron gained 5.5 cents, or 5.6 per cent, to $1.045.
Blood products and vaccines maker CSL improved after announcing a share buyback worth almost $1 billion, adding 88 cents, or 1.4 per cent, to $66.26.
Telstra dropped four cents to $4.96.
The broader All Ordinaries index was up 5.2 points, or 0.1 per cent, at 5264.4.
The December share price index futures contract was up three points at 5252 points, with 26,563 contracts traded.
National turnover was 1.7 billion securities worth $4.4 billion.