The Australian sharemarket shrugged off the deepening eurozone crisis to rally out of the red yesterday after Chinese industrial profits fell for the fifth month, triggering speculation Chinese authorities would respond with monetary stimulus.
The S&P-ASX 200 index opened 0.5 per cent down, but bargain hunters trading off trend line support at 4435 points lifted it to close 10.2 points, or 0.52 per cent, at 4384.2 points after Chinese stocks soared three per cent following a record cash injection by the People’s Bank of China ahead of next week’s holiday.
Overnight European stocks tumbled 2.7 per cent on average, and the US S&P 500 index lost 0.6 per cent as Spain looked headed for a fiull scale bailout, but Asian stocks bounced after the Chinese industrial profits fell 3.1 per cent in August.
After dipping back to a near 44-month low at the psychological 2000 point level, the Shanghai composite index soared over 3 per cent after the lunch time break and was up 2.6 per cent at the close of the ASX on speculation authorities would find some way to prevent the market crashing through the important support level.
In Tokyo the Nikkei index rose 0.5 per cent.
Forex.com analyst Chris Tedder said the market was intensifying its calls for Beijing to do more, “but it may not get what it wants, especially considering China is now facing inflationary effects due to QE3 (Fed stimulus)”.
“Whilst Beijing has an arsenal of growth-stimulating ammunition at its disposal, it has to tread carefully when deciding on the right course of action,” he said.
Last night Spanish bond yields soared 31 points to 6.06 per cent, with Italian and Portuguese yields also climbing, on concerns Spain was headed for a full scale bailout that would consume much of the firepower of the eurozone bailout funds.
Fanning credit markets jitters were anti-austerity protests in Athens and Madrid, with fears the push by Catalonia, Spain’s richest region, for financial autonomy would accelerate the country’s debt crisis.
National Australia Bank global head of currency research Ray Attrill said the immediate risk now was that ratings agency Moody’s may slash Spain’s credit rating to junk, having warned in mid-June when it cut Spain by three notches to Baa3 that further action was likely within three months.
He said “on a positive note” the government would announce some structural reforms today, but “the bond market has already started voting with it feet” and prevarication of a bailout request would see Spanish yields spike back towards the mid-July highs of 7.5 per cent.
“It was always likely that only market pressures/loss of market access was going to force Spain over the line with respect to seeking outside help, and so it is proving,” he said.
The Australian dollar also bounced off technical support at its 200-day moving average, climbing from an overnight low of $US1.0330 to $US1.0420 along with the rally in equity markets.
Gold recovered from its $US20 drop to $US1743 an ounce, rising $US10 to $US1755 an ounce, while copper pared its overnight 1.9 per cent drop, rising 0.2 per cent to $US8136 a tonne.
Yesterday spot iron ore edged up US50¢ to $US104.20 a tonne.
The broader All Ordinaries index had risen 20.3 points, or 0.46 per cent, to 4,402.8. On the ASX 24, the December share price index futures contract was 20 points lower at 4,387 with 25,312 contracts traded.
IG Markets market strategist Stan Shamu said he thought it was also a good sign for Friday’s trading for the market to close at highs for the day.
A risk to that will be the release of the Spanish budget and banking review overnight, which must satisfy the European Central Bank before it agrees to buy Spanish bonds.
That could lead to volatility in trading, amid mass demonstrations in the debt-stricken nation with the government set to pass a tough budget with 39 billion euros ($A49 billion) in austerity measures.
The largest company on Australia’s stock market, BHP Billiton, closed 21 cents, or 0.64 per cent, higher at $33.02 after it had been 0.3 per cent weaker one hour before the close.
It represents more than one-fifth of resources stocks by market capitalisation and helped drag the market up.
Fellow resources stocks improved, including Rio Tinto, which lifted 70 cents to $53.59 and Fortescue Metals climbed one cent to $3.52.
The major banks were in also positive territory with Commonwealth Bank shares rising 46 cents to $55.83, NAB putting on one cent to $25.43, Westpac improving 28 cents to $24.80 and ANZ up 17 cents to $24.67.
Financial markets are also tipping the Reserve Bank of Australia would cut the cash rate next week, which currently stands at 3.5 per cent.
That was stopping equities sliding further, Macquarie Private Wealth division director Martin Lakos said.
Meanwhile, Woolworths shares dipped after it announced the sale of its Dick Smith Electronics chain to a private equity firm for $20 million.Woolworths shares were 27 cents lower at $29.01.
Echo Entertainment shares closed higher after chief executive Larry Mullin quit, joining a management exodus.It was four cents up at $3.79.
Preliminary national turnover was 1.7 billion securities worth $4.33 billion, with 447 stocks up, 446 down and 359 unchanged