Market closes higher but caution remains

The Australian sharemarket surrendered a strong opening gain to finish marginally higher following weak domestic retail sales data and a warning that a proposed Greek rollover plan would amount to “selective default”.

After opening over one per cent higher the S&P/ASX 200 index slipped to close 19.5 points, or 0.42 per cent, up at 4610.7 points as analysts warned the Greek crisis was far from resolved.

The broader All Ordinaries index was 22.5 points, or 0.48 per cent, higher at 4670.4.

Ratings agency Stand & Poor’s said the plan to rollover 70 per cent of maturing Greek government debt may place the country in “selective default” which could lead to further downgrades and trigger credit default swap payments.

Sentiment was initially boosted by the agreement of European ministers to release €8.7 billion ($11.7 billion) of funding for Greece due on July 15.

Analysts have also warned that the proposed structure of the Greek rollover plan amounts to a collateralised debt obligation (CDO) using a special purpose vehicle (SPV), a structure similar to those used in the US for mortgage backed securities that eventually triggered the global financial crisis in 2008.

The euro slipped 0.6¢ to €1.4520 to the US dollar and the Australian dollar lost 0.5¢ to $US1.0715 following the S&P announcement.

On the domestics front May retail sales fell 0.6 per cent against expectations for a 0.6 per cent increase, while May dwelling approvals dropped 7.9 per cent.

Japan’s Nikkei index closed one per cent higher while at the close of the ASX the Shanghai composite index was up 1.6 per cent, despite a slowdown in the June services PMI index.

Chinese stocks gained on speculation slowing growth might signal the end to further monetary tightening measures, while ratings agencies have warned that soaring local government bad debt could force the Chinese government into a $1.4 trillion bad debt bailout.

Weak local economic data was to blame for the underperformance, Australian Stock Report’s head of research, Geoff Saffer, said.

"The retail spending figures were quite a surprise to the market."

"Since then, the market has struggled and the Aussie dollar has pulled back a touch as well."

The market now expects it less likely the Reserve Bank of Australia will decide to raise the overnight cash rate when it meets tomorrow, Mr Saffer said.

Retail stocks bore the brunt of investor concern.

Grocer Woolworths lost five cents to $27.72, department store owner Myer Holdings was off one cent to $2.58 and discretionary retailer Harvey Norman was down two cents, or 0.82 per cent, to $2.42.

Market heavyweight BHP Billiton gained 25 cents, or 0.57 per cent, to $44.02, and Rio Tinto added 32 cents, or 0.39 per cent, to $83.15.

The big banks were the market’s laggards on Monday, closing up to 0.24 per cent lower, Mr Saffer said.

Commonwealth Bank was the exception, with Australia’s largest lender gaining 14 cents, or 0.27 per cent, to $52.06. Telstra eased one cent to $2.91.

The grounding of Tiger Airways Australia was good news for its listed competitors, with Virgin Blue Holdings surging three cents, or 10.53 per cent, to 31.5 cents, and Qantas soaring 12 cents, or 6.49 per cent to $1.97.

Murchison Metals fell 1.5 cents, or 1.96 per cent, to 75 cents after the company said costs at the embattled Oakajee port and rail project had blown out.

Trading was light because the US market would be closed tonight for the July 4 Independence Day public holiday.

National turnover was two million securities worth $3.8 billion, with 700 stocks up, 366 down and 347 unchanged.

On the ASX 24, the September share price index futures contract was up 14 points to 4600 with 29,829 contracts traded.