The Australian sharemarket again reversed early weakness and closed in the black on below average volume as investors camped out on the side-lines ahead of key US and Chinese data out this week.
Following the flat lead from Wall Street the S&P/ASX 200 dropped 0.2 per cent in early trade but rallied to close 11 points, or 0.2 per cent, up at 5588.4 as yield hunters lifted the major banks.
Last night US stocks fell in early trade following weak housing data and PMI services data that underscored the gaping divide between the corporate sector and the rest of the economy as it remained steady at a historical high of 61 points while the employment component tumbled to 52 points.
US pending home sales fell 1.1 per cent, confirming the blowout in US bond yields and mortgage rates since May last year on US Federal Reserve tapering fears had yet to work its way out of the system.
However, while stocks recovered, Westpac strategist Graeme Jarvis noted there was no recovery in high yield credit market indices. The Dow Jones transport index, often considered a bellwether of the broader economy, also continued to diverge from the rest of the market.
Along with the steady outflow from high yield corporate bond funds, the credit market uncertainty signals mounting caution that the global reach for yield was reaching its peak as investors factored in a rise in US rates next year.
The Australian dollar was slightly firmer at US94¢, while government 10-year yields climbed 4.6 points to 3.47 per cent.
The Shanghai composite index was up 0.6 per cent at the close of the ASX as strategists debated stimulus measures and whether the People’s Bank of China needed to go further in rolling out unorthodox monetary policies in order to avert a chain of debt defaults.
Lombard Research analysts wrote in a report that for the past two years China had been in a “mini-cycle with a kick in the end of the year”.
They said this year may provide less of a kick and structural slowdown may be more apparent because “monetary authorities seem to be out of gas”.
Spot iron ore was unchanged at $US94.30 a tonne yesterday while Dalian iron ore futures were up one per cent today.
Gold was slightly firmer at $US1304 an ounce while copper eased to $US7120 a tonne.
The market was in negative territory for most of the session, but turned around when mining stocks picked up in late trade, Bell Direct equities analyst Leanne Jones.
"The materials space was down about 0.3 per cent around one o’clock and now it’s up about 0.3 per cent,” she said.
"The stocks leading that space are the iron ore players, with BC Iron, Fortescue Metals and Atlas Iron doing well after a pick up in iron ore prices overnight."
Fortescue Metals added 11 cents $4.86, BC Iron gained 13 cents to $3.40 and Atlas Iron ended the day 2.5 cents higher at 59.5 cents.
Among the major resources companies, BHP Billiton shed four cents to $39.06 while Rio Tinto gained 39 cents to $65.75.
A profit downgrade from insurance giant QBE had weighed on investor sentiment in morning trade, Ms Jones said.
QBE dropped $1.32, or 11.1 per cent, to $10.57 after the insurer flagged a slide in its first half profit, due to problems with its Latin American operations.
The major banks rose, with National Australia Bank up 42 cents at $35.11, Commonwealth Bank up 35 cents at $82.35, ANZ up 17 cents at $33.69, and Westpac nine cents higher to $34.27.
Telstra gained three cents to $5.46.
With little economic news to drive the market, investors were being cautious ahead of major data releases from the US later in the week, Ms Jones said.
The broader All Ordinaries index was up 10.7 points, or 0.19 per cent, at 5580.6 points.
The September share price index futures contract was 10 points higher at 5539 points, with 17,639 contracts traded.
National turnover was 1.85 billion shares worth $4.05 billion.