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The Australian sharemarket is st to open lower.
The West Australian The Australian sharemarket is st to open lower.

The Australian sharemarket rally extended to a 22-month high today as momentum-buying investors wagered the low bar set for the earnings season which goes into high-gear next week offered solid capital growth upside along with enticing dividend yields.

Shrugging off the negative lead from Wall Street and analysts warnings that the market was overbought, the S&P/ASX 200 index climbed 42.3 points, or 0.87 per cent to 4921.1 points, with conflicting Chinese manufacturing data having little impact on sentiment.

Gains were broad, with miners rallying on the firmer spot iron ore price and banks gaining on reports that pressure on funding margins had eased.

The official China PMI index initially knocked sentiment when it missed forecasts for an increase and instead declined from 50.6 points to 50.4 points, but a lift in the HSBC PMI measure from 51.5 points to 52.3 points saw buyers return to the market.

The Australian dollar chopped around before sliding 0.30¢ to $US1.0390 and 76.33 cents on further evidence foreign investors were bailing out of government bonds where 10-year yields climbed 5.6 points to 3.506 per cent.

Although market's have all but dismissed any chance of a rate cut on Tuesday as housing prices start to rise, the December-quarter PPI increase of 0.2 per cent, half the forecast of 0.4 per cent, firmed up the prospect of a March cut.

In Tokyo the Nikkei index was up 0.8 per cent while the Shanghai composite index was flat at the close of the ASX.

Credit Suisse strategists Atul Lele and Damien Boey wrote in a report that aggregate consensus earnings forecasts for the ASX200 companies was for no growth in earnings in the December-half, with analysts having trimmed forecasts by over 2 per cent in the run up to reporting season, and 10 per cent over the year.

Overnight European and US markets all closed in the red on earnings uncertainty and mixed to weaker data while credit markets remained cautious, well short of the ebullience reflected in global equity markets so far this year.

In the US the Chicago PMI index bounced strongly, but weakly jobless claims also kicked up sharply as seasonal previous positive seasonal adjustments unwound.

Cautioning that rampant equity market sentiment had run well ahead of fundamentals, analysts also noted that the US had never avoided a drop into recession after growing at a pace less than 1.5 per cent over the year which occurred in 2012, well short of the US Federal Reserve's initial 4 per cent forecast.

In Europe falling German and French consumer spending data and weak profit reports from Deutsche Bank and Spanish giant Santander pushed markets into the red.

ANZ senior economist Tom Kenny noted the European Central Bank lending data highlighted poor growth prospects as both demand for and supply of credit remained muted across the eurozone.

"A lack of growth for the EZ poses a risk to macro and financial stability," he said.

More to come…