Investors paid no heed to the growth alarm bells from weak December retail sales as they dived back into the Australian sharemarket in search of yields.
The S&P/ASX followed the overnight bounce in offshore equity markets to close 28.3 points, or 0.78 per cent, up at 4921 points, its highest close for the year, with the second batch of earnings reports today coming in better than forecast.
Retail sales fell 0.2 per cent in December, well short of the expected 0.3 per cent increase, while November sales were also revised down to a 0.2 per cent fall. Woolworths and Wesfarmers both shrugged off the 0.1 per cent contraction in basic food sales.
JP Morgan economist Tom Kennedy said the figures showed consumers remained cautious about how they spent their money in late 2012.
The Australian dollar fell 0.5ï¿½ to $US1.0355 on the data as markets raised expectations for a March rate cut.
Royal Bank of Scotland currency strategist Greg Gibbs said the data suggested that the strong dollar continued to be a bigger drag on the economy than thought, and it was "significantly countering to potential stimulus from lower interest rates".
Market attention is now on tomorrow's employment data for clues to interest rate direction, with an increase to 5.5 per cent from 5.4 per cent forecast.
Overnight Wall Street reversed Monday's losses with a one per cent rally, but the confidence in equity markets was not matched in credit markets, with better than expected services PMI data in China, Europe and the UK offsetting the slowdown in the US ISM index.
Yields in Spain and Italy fell as investors dismissed concerns over political upheaval that unnerved markets on Tuesday.
In Tokyo the Nikkei index soared 3.5 per cent as the yen continued to tumble against most major currencies. The latest bout of weakness occurred after conservative Bank of Japan Governor Masaaki Shirakawa said he would step down ahead of schedule, raising expectations the government would install a new governor more amenable to undertaking unorthodox monetary policy.
The Shanghai composite index was marginally lower at the close of the ASX.
Yesterday spot iron ore was unchanged at $US154.20 while copper gained 0.4 per cent to $US8308 a tonne.
More to come