Market rally runs out of steam

The Australian sharemarket ran out of steam today as fading domestic rate cut hopes offset further strength in the spot iron ore price.

Following the soft lead from Wall Street last night the S&P/ASX 200 index traded in the red for the whole session and closed down 34.2 points, or 0.57 per cent, at 5958.5 led by healthcare stocks after the rout in US biotech’s last night.

Spot iron ore jumped another 2.3 per cent to $US59.09 a tonne yesterday but Dalian iron ore futures reversed a one per cent gain today despite rumours the People’s Bank of China was about to embark on a quantitative easing program to ease liquidity constraints by purchasing local government bonds.

The Shanghai composite index took a breather after the 3 per cent surge yesterday but it later reversed early losses to trade up 0.2 per cent at the close of the ASX.

Westpac economist Huw McKay said the latest Chinese policy initiative, which appeared to involve the central bank acquiring assets from commercial banks, thereby helping to “un-silt the credit channel” while simultaneously allowing the PBOC’s balance sheet to grow in the face of declining FX reserves, made a lot of sense.

“Smooth management of the local government debt load will help the economy in the medium term,” he said.

In Tokyo the Nikkei index was up 0.3 per cent.

The Australian dollar climbed 0.6¢ to US78.70¢ on the steady domestic yield outlook and a weaker US dollar falling along with easing US rate rise fears.

Government 10-year yields jumped 6.6 points to 2.568 per cent.

Hopes for a deal to keep Greece in the eurozone were raised last night after Greek Prime Minister Alexis Tsipras replaced hardline negotiator Finance Minister Yanis Varoufakis following reports of frustration from EU finance ministers over his negotiating tactics.

Iron ore prices in China edged closer to the $US60 a tonne mark but investors instead used a weak lead from Wall Street to take profit on mining stocks, Morgans private client adviser Alistair McCorquodale said.

“We’re just seeing a little bit of a breather today,” he said.

Mining giant BHP Billiton shed 15 cents to $32.42, Rio Tinto dropped 98 cents to $58.79 while iron ore player Fortescue dropped 12 cents, or 4.7 per cent, to $2.45.

Healthcare stocks posted the heaviest losses, with CSL down $1.55 at $93.73, ResMed giving up 33 cents to $8.13 and condom and glove maker Ansell down $1.23, or 4.3 per cent, to $27.43.

Vitamins maker Blackmores added 20 cents to $59.65 after forecasting a record full year profit on the back of a 125 per cent profit increase for the March quarter compared with the same period last year.

Oil and gas explorer Beach Energy was down 3.5 cents, or three per cent, at $1.155 after announcing a 43 per cent drop in sales revenue for the March quarter.

The broader energy sector was weaker as oil prices fell during offshore trade, with Woodside down 31 cents at $35.58 and Oil Search losing 18 cents to $8.25.

Among the banks, Commonwealth Bank was down 14 cents to $92.58, National Australia Bank fell seven cents to $38.38, Westpac shed 46 cents to $38.39 and ANZ slipped 17 cents to $35.41.

But Woolworths added 57 cents to $29.80 on a good day for consumer staples.

The broader All Ordinaries index was down 33.3 points, or 0.56 per cent, at 5921.5.

The June share price index futures contract was 43 points lower at 5929, with 22,644 contracts traded.

National turnover was 1.4 billion securities worth $4.5 billion.