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Market gets off to a flying start after US fiscal cliff deal

3 Jan 2013 SYDNEY MORNING HERALD - GLENDA KWEK


THE Australian sharemarket recorded its best start to the year in more than a decade, closing more than 1.2 per cent higher in the first day of trading for 2013 after the US Congress supported a deal to avert the "fiscal cliff".

The ASX200 closed at 4705.9 - a 19-month high - and recorded its biggest percentage gain in one day in five months.

"It's a relief rally that's taken shape with the fiscal cliff out of the way for the moment," said BBY institutional dealer Anson Rosewall. But he cautioned that trading volumes were unusually thin and open to exaggerated moves.

The Australian dollar rose against the US dollar, fetching just under US105¢. An appetite for risk saw the Japanese yen falling broadly, helping to lift the Australian dollar to as high as 91.535 yen.

But while the market reacted favourably to the deal, more political bickering in the US was expected to take place over the debt ceiling, reintroducing uncertainty into the market, said Justin Fabo, the head of ANZ's economics department.

"What we saw last time this happened is that it will possibly again create all this uncertainty," Mr Fabo said about the last debt ceiling fight in 2011.

"The main effect on Australia will be through confidence channels. We still think that these things get resolved, it's just that that tends not to happen straight away.

"In the meantime, the uncertainty tends to have an adverse effect on confidence, not just in the US but also in Australia."

Mr Fabo said he expected any negative repercussions on Australia to be short-lived, with domestic issues still taking precedence in their impact on the local economy.

He said economic data, such as the surprise fall in house prices nationally for December, and the fall in private sector credit levels, indicated that the Reserve Bank was still likely to cut interest rates again when it meets early next month.

"There's still not a lot of evidence that the interest rate-sensitive parts of the economy are picking up strongly enough. So our view is that there are further cuts to rates to come," he said.

Market report— Page 14