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Fiscal cliff deal spurs flying start to 2013 on Australian sharemarket

3 Jan 2013 THE AGE - GLENDA KWEK



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

The S&P/ASX 200 Index closed at 4705.9 points - 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," BBY institutional dealer Anson Rosewall said. But he cautioned that trading volumes were unusually thin and open to exaggerated moves.

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

While the market reacted favourably to the deal, more political bickering in the US was expected over the debt ceiling, reintroducing uncertainty into the market, said Justin Fabo, the head of ANZ's Australian 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 that recent economic data, such as the surprise fall in house prices nationally for December, which was released on Wednesday, and the fall in private sector credit levels, indicated that the Reserve Bank was still likely to cut interest rates again when it meets in early February.

"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 over the course of this year," he said.