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GDP data fails to lift market

The market has closed lower. Picture: Lincoln Baker/The West Australian.

Solid, but backward looking, March-quarter GDP data failed to halt the Australian sharemarket slide as the detail showed cautious consumers ensured growth remained unbalanced.

The S&P/ASX 200 index dropped 34.9 points, or 0.64 per cent, to 5444.8 after the annualised rate of growth of 3.5 per cent beat forecasts on the back of surging net-exports, with domestic demand growth of 1.6 per cent lagging well behind.

The Australian dollar spiked US0.3� higher and reversed to trade little changed at US92.70�, but Government 10-year yields jumped another 6.5 points to 3.787 per cent as they followed the global retreat in safe-haven yields.

"Record low interest rates are a key tailwind for growth, but the economy remains constrained by a number of headwinds," Westpac economist Andrew Hanlan said. "In particular: a tightening of fiscal policy; a slowing of growth in China, triggering a decline in our terms of trade; a still high currency; and a downturn in mining investment."

ANZ commodity strategist Mark Pervan said deteriorating iron ore fundamentals had prompted a 10 per cent downgrade in his forecasts for the next two years, which if sustained would lead to an 8 per cent drop in Australia's terms of trade.

He does, however expected a 10 to 15 per cent bounce in prices from oversold levels in coming months.

Yesterday spot iron ore shrugged off falling futures prices to rise 0.5 per cent to $US92.50 a tonne, while Dalian iron ore futures were up 1.1 per cent today.

The Shanghai composite index was off one per cent at the close of the ASX as fears of a property market slowdown weighed on sentiment.

In Tokyo the Nikkei index was flat.

Last night US stocks eased from record highs and US 10-year yields dropped 6 points to 2.58 per cent, raising hopes the bearish signal from bonds last week was a false alarm.

However, futures exchange data appeared to show it was possibly just traders building short bond positions betting that yields will rise as the US Federal Reserve tapers its bond buying program to zero by October.

US factory orders rose 0.7 per cent, flattered by solid defence orders, while vehicle sales also beat forecasts.

Gold was steady at $US1246 an ounce and copper extended its overnight 0.9 per cent fall, dropping another 0.8 per cent to $US6830 a tonne.

More to come…