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The market is set to gain ground at the open.
The West Australian The market is set to gain ground at the open.

The Australian sharemarket rallied from the red to reach a fresh post-GFC high, but bullish sentiment was tempered for most of the session by falling metal prices and the Reserve Bank's cautious outlook on the domestic economy.

US markets were closed yesterday and the lead from Europe was mostly negative, prompting the S&P/ASX to open in the red. Demand for industrials, telcos and energy stocks lifted the benchmark index, and a last minute ramp saw it close 18.5 points, or 0.37 per cent, up at 5081.9 points, the high of the day.

Small cap stocks remained out of favour, with the small ordinaries index losing per cent.

The Australian dollar bounced 0.3� to $US1.0330 after the Reserve board meeting minutes said the "interest rate sensitive" sectors were responding to previous rate cuts, prompting markets to lower expectations for a March rate cut.

However, the minutes also noted that the inflation outlook "would afford scope to ease policy further, should that be necessary to support demand", leading to the view that there was still a bias towards further easing.

"We judge that the (Reserve's) assessment of the need for additional rate cuts will be shaped by the housing sector's response to lower interest rates, developments in the labour market and prospects for non-mining business investment," Westpac chief economist Bill Evans said.

He said the capital expenditure survey out at the end of the month would be a critical input into this assessment.

"We agree that current domestic economic conditions are patchy and assess that the risks to the RBA's central case forecast are to do the downside - hence the need for additional stimulus," he said.

Royal Bank of Scotland currency strategist Greg Gibbs said the broad-based gains in the sharemarket, especially in sectors like consumer discretionary stocks and industrials that might be damped down more by an expensive exchange rate, suggesting that the Reserve should not be rushing to cut rates in coming months.

The Shanghai composite index was down one per cent at the close of the ASX after the government estimated slower cement use growth this year and China Business News said the government may introduce property curbs this month.

In Tokyo the Nikkei index was off 0.4 per cent as the yen rallied.

Overnight copper fell 1.1 per cent and nickel tumbled 2.9 per cent after eurozone exports fell 1.8 per cent in December and Canadian manufacturing slumped 3.1 per cent, ringing the alarm bells over the state of the global economy.

While Shanghai rebar futures slumped 2.4 per cent yesterday and were down another 0.5 per cent today, spot iron ore bounced 1.3 per cent to $US157.20 a tonne yesterday.

More to come…