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Recovery rally extends to week's end

Easing geopolitical tensions, renewed demand for high yielding assets and a surge in BHP Billiton's share price extended the Australian sharemarket recovery rally.

The S&P/ASX 200 index climbed 18 points, or 0.32 per cent, to 5566.5 as miners caught up to the rest of the market after lagging for much of the week.

BHP Billiton led the charge after announcing a demerger of its assets was its preferred option to simplify its business.

Last night the US S&P 500 index gained 0.4 per cent after Russian President Vladimir Putin said he would do everything in his power to end the conflict in Ukraine, with investors shrugging off Germany's worse than forecast GDP growth of minus 0.2 per cent and France's flat growth rate.

Eurozone inflation also showed the world's biggest economic bloc was slipping closer to deflation after July consumer inflation fell 0.7 per cent for the month, dragging the annual rate down to 0.4 per cent.

The flat total eurozone GDP growth rate has been preceded by six negative quarters then four soft positive results, Westpac economist Elliot Clarke said.

"Underlying this soft aggregate growth trend is a tug-of-war between reform and growth-stifling rigidities; the result will determine the Union's long-term welfare," he said. "All told, the challenges faced by the region (political; social; economic; and legal) are substantial; so, the risks to the outlook are great."

The Shanghai composite index was up 0.8 per cent at the close of the ASX on speculation the government would support the sagging Chinese economy.

In Tokyo the Nikkei index was marginally lower.

Spot iron ore was unchanged at $US93.20 a tonne yesterday while Dalian iron ore futures were up 0.6 per cent.

Copper fell 0.7 per cent to a fresh two-month low of $US6835 a tonne while gold was steady at $US1313 an ounce.

More to come…