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Santa Claus rally runs out of steam

The Aussie sharemarket has closed lower. Picture: AP.

A sharp reversal to the downside in iron ore and oil prices snuffed out the Australian sharemarket recovery rally.

Following a 0.4 per cent rise to a record closing high on the US S&P 500 last night the S&P/ASX 200 index fell 61.1 points, or 1.12 per cent, to 5380.9 as minerals and energy stocks fell.

Spot iron ore fell 1.8 per cent to a fresh five-year low of $US67.90 a tonne yesterday and Dalian iron ore futures fell 2 per cent today, while Brent crude oil tumbled 3.6 per cent to $US60.50 a barrel. Gold fell $US18 to $US1178 an ounce.

Oil prices reversed after Saudi Arabian oil minister Ali Al-Naimi said OPEC's biggest producer would seek to maintain market share and that global demand growth this year was slower than expected.

The Australian dollar dropped US0.3� to US81.15�, marginally above its four-year low at US81.07¢, as the US dollar rallied against most global currencies, while government 10-year yields lost 2.6 points to 2.827 per cent.

"Downward pressure on global yields appears likely to persist well into 2015 driven by, QE in Japan and Europe encouraging a global search for yield, fears over tepid global growth and higher debt levels in emerging market economies, and lower industrial and energy commodity prices," Royal Bank of Scotland currency strategist Greg Gibbs said.

The Shanghai composite index was off 0.6 per cent from a four year high at the close of the ASX despite a flood of cash into the banking system following the postponement of two initial public offerings.

Japanese markets were closed for a holiday.

The US growth outlook was dented by a 6.1 per cent fall in US existing house sales.

"This is further evidence of the underperforming housing market this far into the economic recovery, which is now more than a half a decade long," Westpac economists said. "Home sales have now failed to sustain a move about 5million annualised three times in that recovery; prior to the 2007 crash, sales had never dipped below 5million annualised in the previous decade."

More to come…