Bargain hunters pared a steep early loss to leave the Australian sharemarket slightly lower after firm US data sent global borrowing costs higher again.
The major banks led the early sell-off to a 0.7 per cent loss, but the market rallied steadily to close 12 points, or 0.23 per cent, down at 5186 points.
Overnight Wall Street lost ground for the fifth straight session after US September-quarter GDP was revised up from 2.8 per cent to 3.6 per cent, once again raising the prospect the US Federal Reserve could trim its bond purchasing program sooner than expected.
An unexpected drop in US weekly jobless compounded Fed tapering fears ahead of the important non-farm payroll number tonight.
However, losses were limited by the fact that the GDP number was boosted by a heavy build-up in business inventories that accounted for a staggering 56 per cent of growth, underscoring warnings that firmer data belied poor underlying demand in the world's biggest economy.
The US dollar lost ground again most major currencies, but US 10-year yields were steady at 2.87 per cent as global credit markets continued to price in greater risks of tapering.
The Australian dollar climbed 0.4Â¢ to US90.60Â¢ and Australian government 10-year yields rose 4.2 points to a fresh two-year high of 4.437 per cent.
The Shanghai composite index was off 0.6 per cent at the close of the ASX as Chinese one-year interbank borrowing costs rose to six -year highs in anticipation of financial market liberalisation.
ANZ strategist Patrick Perret-Green said higher borrowing costs in the world's two biggest economies posed growth risks for Asia as Chinese officials eased the repression of savings rates in China.
"While the rise in Chinese rates should be welcomed we remain of the view that this will continue to impact negatively on Asian rates markets along with the ongoing Fed tapering factor," he said. "Yield curves are likely to continue to bearishly steepen while credit and currencies will main broadly under pressure."
These concerns were reflected in the resumption of investment outflows from Asia where a net $US260 million flowed out last week according to ANZ.
In Tokyo the Nikkei index reversed early gains to trade flat as the yen rallied against the US dollar.
Gold continued to slide back towards the week's low, losing $US13 to $US1225 an ounce, while copper slipped 0.2 per cent to $US7050 a tonne and spot iron ore eased 0.1 per cent to $US139.50 a tonne yesterday.
CommSec market analyst Steve Daghlian said trading volumes had been thin on Friday as local investors reacted to a fifth consecutive day of losses in the US and Europe.
“We’re seeing a little bit of weakness following that lead from Wall Street,” Mr Daghlian said.
“But the losses haven’t been great. The market is really treading water ahead of the US non-farm payrolls tonight, the most important data all week.”
Global markets fell after surprisingly good US economic growth in the third quarter raised expectations that the US Federal Reserve will hasten plans to taper its economic stimulus program.
A stronger than expected US jobs number on Friday could lead to further falls.
The local market has closed lower on five of the past six trading days.
In the banking sector Westpac rose two cents to $31.51, Commonwealth Bank fell 33 cents to $75.17, ANZ fell 20 cents to $30.99, and National Australia Bank lost 19 cents to $33.47.
Among the resources companies, global mining giant BHP Billiton eased three cents to $36.75, and Rio Tinto picked up 41 cents at $66.41.
Market debutant Nine Entertainment Co lost seven cents to $1.98 after opening at $2.02. The company, which owns the Nine Network, Ticketek and ninemsn, listed on the Australian Securities Exchange at $2.05 per share.
Airline Qantas fell four cents to $1.03 after ratings agency Standard and Poor’s downgraded the airline’s credit rating, increasing the cost of financing and restricting access to investors that do not invest in lower-rated companies.
Meanwhile, new arrival Dick Smith was flat at $2.24 after listing earlier in the week at $2.20.
Travel agency Flight Centre shares dropped three per cent to $46.00 after the consumer watchdog won a price fixing case against it in the Federal Court.
The broader All Ordinaries index was down 10.9 points, or 0.21 per cent, also at 5,186.0.
The December share price index futures contract was 28 points lower at 5,183, with 28,446 contracts traded.
National turnover was 1.4 billion securities worth $3.4 billion.