Ratings agency Moody’s knocked the global bullish revival after it downgraded France’s credit rating this morning, leaving Asian stocks and the Australian sharemarket lagging the 2 per cent plus surge in offshore markets overnight.
The S&P/ASX 200 index struggled to finish 24.3 points, or 0.56 per cent, up at 4385.7 points, despite “dovish” Reserve Bank minutes reviving hopes for a December rate by saying “members considered that further easing may be appropriate in the period ahead”.
Overnight the S&P 500 index extended Friday’s bounce, soaring another 2 per cent on low volume, pre-holiday trade, on hopes for a compromise in ‘fiscal cliff” talks and improved US housing data.
Pouring cold water on optimism that eurozone finance ministers were set to approve Greece’s bailout funding, Moody’s cut France by one grade to Aa1 and said its outlook remained negative.
Forex.com analyst Chris Tedder said concerns about France weren’t without merit as public debt above 90 per cent of GDP and was at risk of rising further if France could not regain its competitiveness.
“Furthermore, Moody’s cited multiple structural changes that are hampering the competitiveness of France, as well as the long-standing rigidities of its labour, goods and service markets,” he said.
“The fear is France will follow peripheral Europe and be swallowed by debt.”
Providing fresh wind for exporters and the domestic economy, the Australian dollar climbed another 0.4¢ to $US1.0420 after the IMF said the dollar and the Canadian dollar could be classified as “reserve” currencies, sparking a fresh round of safe-haven buying interest.
The Shanghai composite index dropped 0.3 per cent as financial stocks lost ground after foreigners showed lack of confidence in the economy by reducing foreign direct investment by 0.2 per cent in October.
Japan’s Nikkei index was off 0.2 per cent after the Bank of Japan’s shrugged off political pressure by leaving interest rates unchanged at its policy meeting.
Copper pared its overnight 2.3 per cent rally, losing 0.7 per cent to $US7746 a tonne after Moody’s brought the eurozone crisis back into focus. Gold climbed $US10 to $US1734 an ounce, while spot iron ore was unchanged at $US122.80 a tonne.
The broader All Ordinaries index was up 24.9 points, or 0.57 per cent, at 4407.5.
On the ASX 24, the December share price index futures contract was 20 points higher at 4399, with 24,464 contracts traded.
CMC Markets sales trader Ben Taylor said he thought investors were wary about how close US politicians were to resolving the country’s deficit problems.
"The equity market seemed to be calling the fiscal cliff situation almost resolved, but I wouldn’t be surprised to see bit of a fall leading into Thanksgiving (holiday on Thursday),” Mr Taylor told AAP.
"The US were up two per cent, we are only up 0.6 and the bond market isn’t really buying it, suggesting they’re taking a bit more of a cautious view."
The cliff refers to a looming US budget deadline, with tax measures and government spending cuts due to come in from January unless US politicians can agree on a long-term debt reduction plan.
Mr Taylor said he thought some of the volatility this week that sent stocks up involved traders buying stocks to cover their short positions - that is, stocks they had sold believing its price would fall.
“Quite a number of people with short positions were getting a little bit worried that the market looked like it could jump and I think this is really short covering pushing this market higher,” Mr Taylor said.
One example was utilities company Origin Energy, whose stock was punished less than a fortnight ago, sinking to four-year lows amid a profit downgrade and debt worries.
Today, Origin shares leapt up by more than 3 per cent for the second consecutive day, closing 33 cents up at $10.58.
Mining stocks were the best performers, rising more than 1.3 per cent, which market watchers believe have been oversold on the fiscal cliff concerns.
BHP Billiton was 33 cents, or 1.11 per cent, higher at $33.58, while Rio Tinto had risen 77 cents to $57.48.The biggest gold company on the bourse, Newcrest Mining, climbed 24 cents to $25.24.
Shares in engineering firm Monadelphous shot up after it bucked the trend of other mining services companies.
The company, which is also exposed to the infrastructure sector, said it expected its first half sales revenue to grow by 40 per cent due to record levels of new construction work.
Its shares closed up $1.24, or 6.12 per cent, at $21.50 but are still well below the $24-plus levels of April.
National turnover was 1.3 billion securities worth $3.4 billion, with 522 stocks up, 418 down and 339 unchanged.