The ASX may open higher. Picture: Reuters.
The ASX may open higher. Picture: Reuters.

The Australian sharemarket bounce was capped by a drop in the Chinese yuan and weak Chinese lending data that stoked fears stimulus in the world's second biggest economy was on a path of rapidly diminishing returns.

The S&P/ASX 200 index climbed 0.9 per cent mid-session but dropped back to close 29.2 points, or 0.55 per cent, up at 5388.2 after Chinese March lending met forecasts but money supply slowed sharply.

Domestic stocks followed the overnight bounce on Wall Street where the S&P 500 index finished 0.8 per cent up following a rally from flat in the last 30 minutes of trade.

Sentiment was buoyed by solid US retail sales data and Citigroup earnings that beat forecasts but the intraday selloff showed investors remained on edge.

The Shanghai composite index was off one per cent at the close of the ASX after new bank yuan loans bounced from February lows and total loans including those from shadow bank financing easily beat forecasts by more than doubling to 2.07 billion yuan. However, M2 money supply decelerated to 12.1 per cent from 13.3 per cent, the lowest level in 13 years

In Tokyo the Nikkei index was up 0.7 per cent.

The Australian dollar slipped US0.3¢ to US93.90¢ after the Reserve Bank minutes reflected renewed unease of the dollar's resurgence.

The Reserve said while the decline in the exchange rate from its highs would assist in achieving balanced growth in the economy "this would be less so than previously expected given the rise in the exchange rate over the past few months".

Government 10-year yields rose 3.3 points to 3.998 per cent.

Westpac chief economist bill Evans said the labour market; housing; consumer spending; and business conditions all point to sufficient modest improvement to preclude the need for lower rates.

"On the other hand the sheer modesty of this recovery coupled with ongoing uncertainty in the global economy indicate a low probability of more imminent rate hikes," he said.

Gold slipped $US6 to $US1320 an ounce, copper dropped 0.6 per cent to $US6630 a tonne and spot iron ore edged up 0.1 per cent to $US117 a tonne.

More to come…

The West Australian

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