The Australian sharemarket is higher mid-morning.
The Australian sharemarket is higher mid-morning.

Dividend loving bargain hunters poured cash into the Australian sharemarket at the open, with the ensuing rally given a further boost by Reserve Bank governor Glenn Stevens' "glass half full" outlook, but investors sold into the strength, leaving it well off the day's high.

The S&P/ASX 200 index climbed 1.5 per cent at its peak but dropped back to close 38 points, or 0.76 per cent, up at 5018.1 points as investors wagered the US Federal Reserve uncertainty over its quantitative easing policy would not derail the global demand for yield.

Volume at the open was almost 50 per cent above Monday's opening level which reached a hefty $9.3 billion at the close, with bullish interest given fresh impetus by comments from Fed president John Williams' comment that it would take until mid-2015 before the US unemployment rate was low enough to scale back bond purchases.

"A correction was overdue," AMP Capital Investors head of investment strategy Shane Oliver said.

"Our inclination is to see it as just that, (in other words) a correction which may or may not have a bit further to go in the short term but will set the base for more gains in the months ahead."

Unwinding some of the Reserve's hoped for weakness, the Australian dollar bounced 0.8¢ to $US1.03 after Governor Stevens reaffirmed the passive approach to Aussie strength.

He said the currency was overvalued and that rates were set "with a recognition of the exchange rate's effect on the economy", but the Reserve was reluctant to it actively force it lower.

"Markets are irrational much of the time, but somehow, over the broad sweep of history, they have done a better job setting that price than we would have done if we'd been trying to set it," he said.

The shanghai composite index was flat at the close of the ASX while Japan's Nikkei index reversed early weakness to trade 0.3 per cent up.

Last night the US S&P 500 index lost 0.6 per cent and European stocks fell over 2 per cent on average after the composite eurozone PMI index missed forecasts for an increase, instead it slipped to 47.8 points from 47.9 points, indicating the region remained firmly in recession this quarter.

US weekly jobless claims reversed last week's improvement, but existing home sales increased 0.4 per cent, beating expectations for a 0.8 per cent drop.

Keeping up pressure on miners, spot iron ore fell 1.7 per cent to $US156.20 a tonne yesterday and Shanghai steel rebar futures fell 0.8 per cent to a four week low today.

Copper bounced 0.3 per cent to $US7880 a tonne and gold climbed $US20 to $US1582 an ounce.

More to come…

The West Australian

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