The Australian sharemarket failed to hold onto two rallies and closed in the red for the second day as a record slump in the Chinese yuan sent shivers through Asian markets.
The S&P/ASX 200 index opened 0.6 per cent up in line with the bounce on Wall Street last night, dropped back to break even and then rallied 0.4 per cent as Chinese stocks climbed in early trade.
Domestic stocks sold off again as the yuan tumbled and the benchmark index closed 6.7 points, or 0.12 per cent, down at 5404.8.
The yuan fell on fears the People’s Bank of China was planning to widen the trading band around its daily fixing from one to 2 per cent which could provide an unwelcome element of risk as the economy slows.
Relative to most currencies the six-week 2 per cent drop in the yuan to 6.1650 to the US dollar is relatively small, but the moved has wrong-footed domestic and foreign speculators betting on the strengthening trend since 2009 continuing.
The Shanghai composite index was trading 0.9 per cent down at the close of the ASX.
In Tokyo the Nikkei was off 0.6 per cent.
The US S&P 500 index bounced 0.6 per cent as weekly jobless claims climbed and US January durable goods orders fell less than forecast, albeit from a downwardly revised December figure.
“Loss of momentum in the jobs market seems to coincide with the sagging core capital goods orders trend,” Westpac economist Imre Speizer noted.
The Australian dollar dropped US0.3¢ to US89.40¢ as the yuan weakened, reversing earlier strength following comments from US Federal Reserve chairman Janet Yellen’s that the Fed needed to determine how much of the spate of weak data was because of the extremely cold weather.
“In truth, her remarks fall into the category of ‘The Fed will do its job’ but clearly some detected signs of less than 100 per cent commitment to maintain the pace of tapering at the next (March 20) FOMC meeting, even though the Fed chairwoman reiterated that a change in the tapering schedule requires a ‘significant’ outlook change,” National Australia Bank global head of currency strategy Ray Attrill said.
Gold rose $US4 to $US1330 an ounce, copper reversed a steep overnight fall to trade little changed to $US7020 a tonne and spot iron ore rose 0.3 per cent to $US118.20 tonne.
IG market strategist Stan Shamu said it had been a positive earnings season for companies, although profit growth were driven more by cost reductions than improved sales.
Friday’s slight fall for the market was driven by nervousness about China’s economy ahead of manufacturing numbers out on the weekend, and the Reserve Bank of Australia’s decision on interest rates next week, Mr Shamu said.
"Yesterday we had very disappointing private capital spending numbers after a situation when the Reserve Bank had switched to a neutral bias ... how will the economy play out for the rest of the year without another rate cut?” he said.
Woolworths posted a higher half year profit of $1.3 billion on Friday said the outlook was good, but its shares fell 35 cents to $36.07.
Virgin Australia shares closed flat at 35 cents after being down for most of the day, after it reported a first half loss of $83.7 million as it fights to take market share from rival Qantas.
Qantas gained one cent to $1.165 amid fallout from yesterday’s news that it would axe 5000 jobs, freeze wages, retire old planes, and slash capital spending and some routes - all to reduce costs.
Among the major banks, Commonwealth Bank dropped 54 cents to $74.66, National Australia Bank shed eight cents to $34.74, Westpac lost seven cents to $33.47 and ANZ slipped by one cent to $32.14.
The broader All Ordinaries index was down 5.6 points, or 0.1 per cent, at 5415.4 points.
The March share price index futures contract was flat at 5396 points, with 34,950 contracts traded.
National turnover was 2.26 billion securities worth $8.7 billion.