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ASX up as miners roar back into favour

Diminishing fears of rising global borrowing costs and bullish broker upgrades for metal prices and miners sparked a heavy volume rally on the Australian sharemarket.

Following a record high on Wall Street the S&P/ASX 200 index opened 0.9 per cent up but lost momentum on weak Chinese data before spiking to close 49.8 points, or 0.91 per cent, up at 5498.2 points.

There was no obvious catalyst as the US VIX volatility "fear" index slumped shortly before the US open last night, providing the catalyst to drive the S&P500 index climbed to a record high.

Markets did act positively to comments from European Central Bank board member Ewald Nowotny that one interest rate cut was unlikely to be sufficient to revive inflation in the eurozone and that several stimulus measures were preferable.

Chinese total financing of 1.55 trillion yuan fell by a third in April but beat forecasts, while bank new yuan loans fell short of forecasts. Factory output expanded 8.7 percent last month compared with the median estimate for 8.9 percent growth, while retail sales rose 11.9 percent in April, compared with the forecast for 12.2 percent growth

Westpac senior economist Huw Mckay said weak growth in Chinese credit would hinder real activity deep into this calendar year.

The Shanghai composite index was off 0.4 per cent at the close of the ASX despite the People's Bank of China loosening interbank funding when it allowed repo deals to mature without mopping up the funds with new cashing draining deals.

"Chinese authorities are currently engaged in a fine balancing act aimed at simultaneously keeping GDP growth at respectable levels and reining in the excesses of the country's shadow banking system," Patersons economist Tony Farnham said.

In Tokyo the Nikkei index jumped 1.8 per cent as the yen lost ground against the US dollar.

The Australian dollar traded in a tight range but slipped US0.3¢ to US93.40¢ after the weak Chinese data, while government 10-year yields rose 1.6 points to 3.849 per cent.

Gold firmed $US4 to $US1294 and copper pared its 2 per cent overnight rally, sliding 0.7 per cent to $US 6830 a tonne. Yesterday spot iron ore rose 0.3 per cent to $US103 a tonne while Dalian iron ore futures jumped 1.5 per cent today.

More to come…