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The Australian sharemarket more than reversed yesterday’s rally after retail sales missed forecasts, the Reserve Bank left interest rates on hold and Chinese data showed an underwhelming response to the country’s “mini stimulus” program.

The S&P/ASX 200 index fell in early trade but rallied on positive net export data, before sliding to close 38.7 points, or 0.7 per cent, down at 5479.7 as US and Chinese data muddied the global growth outlook, knocking iron ore and steel prices.

Dalian iron ore futures fell one per cent, indicating falls in spot iron ore to fresh 20-month lows, after the HSBC China PMI index was revised down to 49.4 points from the 49.7 measured in the “flash” survey.

The Shanghai composite was up 0.3 per cent at the close of the ASX after the services PMI index rose 0.7 points to 55.5 points, boosting hopes for a rebalancing of growth.

In Tokyo the Nikkei index rose 0.8 per cent.

The Australian dollar climbed US0.3¢ to US92.70 after the Reserve “pointedly” commented that the slightly weaker currency was aiding growth, “but less so than previously as a result of the higher levels over the past few months”.

A 1.4 per cent increase in net-exports in the March-quarter beat forecasts for 0.8 per cent and signalled a solid GDP result tomorrow, but the broader and more current retail sales economic indicator rose just 0.2 per cent in April, below forecasts for a 0.3 per cent increase.

“The slowdown in retail sales is consistent with the weakening in consumer sentiment early in the year,” Westpac economist Mathew Hassan said.

“May’s sharp fall in confidence suggests spending will be weaker still in the months ahead.”

Australian government 10-year yields jumped 5.6 points to 3.727 per cent, tempering unease over the negative signals from low global bond yields, after benchmark US 10-years climbed points to 2.53 per cent last night.

Last night the release of incorrectly adjusted US ISM data stoked confusion after the leading index was first shown to have fallen, but the US S&P 500 rallied from the red to finish 0.1 per cent up at a record high after the index was revised higher.

The ISM data was countered by weaker than forecast 0.2 per cent increase in construction spending, while earlier German consumer inflation of just 0.6 per cent missed forecasts, underscored deflationary pressures in the eurozone and bolstered expectations for a rate cut from the European Central Bank on Thursday.

Gold was little changed at $US1245 an ounce, copper pared its 13 per cent overnight rally, sliding 0.6 per cent to $US6890 a tonne, steel rebar futures fell 0.9 per cent and spot iron was slightly firmer at US92.10 a tonne yesterday.

Lonsec senior client adviser Michael Heffernan said the RBA’s economic commentary accompanying its decision to keep interest rates unchanged at 2.5 per cent seemed more downbeat than previous statements.

“I think that may have filtered through to the market because we accelerated the decline after that,” Mr Heffernan said.

“Retail sales figures came out today, too. They were okay, but only okay.”

RBA governor Glenn Stevens said an earlier decline in the exchange rate was helping to achieve balanced growth in the economy, but less so than previously as a result of the higher levels over the past few months.

“There has been some improvement in indicators for the labour market in recent months, but it will probably be some time yet before unemployment declines consistently,” he said.

“Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time.”

Retail spending grew at a sluggish pace in April, with growth of 0.2 per cent below market expectations.

In the resources sector, global miner BHP Billiton was down 19 cents at $36.40, Rio Tinto rose 42 cents to $59.65, and Fortescue Metals dipped one cent to $4.48. The big four banks were mostly weaker.

Commonwealth Bank sagged 36 cents to $81.90, National Australia Bank fell 24 cents to $33.64, Westpac dropped 15 cents to $34.45, and ANZ hovered at $33.71.

Among the retailers, Harvey Norman reversed 11 cents to $3.09, Myer slumped eight cents $2.11, and JB Hi-Fi was 32 cents weaker at $17.62.

The broader All Ordinaries index was down 38.7 points, or 0.7 per cent, at 5460.5 points.

The June share price index futures contract was 46 points lower at 5480 points, with 26,919 contracts traded.

National turnover was 1.45 billion securities worth $3.86 billion.


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