Central banks fail to fire bourse

The Australian sharemarket lost ground yesterday after Europe, Britain and China tried to kick-start their economies with looser monetary policy, all within the space of an hour, prompting fears about a slowdown in global growth.

The Australian sharemarket lost ground yesterday after Europe, Britain and China tried to kick-start their economies with looser monetary policy, all within the space of an hour, prompting fears about a slowdown in global growth.

But yesterday's concerns about the global economy were not enough to prevent the local bourse from gaining ground for the week (and for the second week in a row).

For the week, the benchmark S&P/ASX200 index rose 63.17 points, or 1.5 per cent, at 4157.8.

Yesterday the market lost value after the Bank of England decided to pump an extra #50 billion ($75.5 billion) into the British economy, and the European Central Bank cut its main interest rate to a historic low of 0.75 per cent, both citing weaker inflation.

The news saw the Australian dollar rise to a record high against the euro and hit a two-month high against the greenback.

The dollar climbed to as high as 83.19 euro cents - its strongest reading against the European currency.

The moves were anticipated by traders, some of whom were disappointed they did not go further.

But then China surprised everyone by dropping its official cash rate to 6 per cent (from 6.31 per cent).

European and US markets lost ground on the news (while the US dollar jumped by the most in seven months), because the sight of three of the world's most powerful central banks all trying to stimulate their economies was not an encouraging one. It almost guaranteed that Australia's market would have a tough time of it yesterday.

"It is hard to escape the conclusion that there is a growing sense of desperation on the part of central bankers, and especially those in the northern hemisphere," Russell Jones, the global head of fixed income strategy at Westpac, said.

"They are rapidly running out of conventional ammunition, while, unfortunately, there are signs of diminishing returns ... where their unconventional departures are concerned."

Local traders were also yesterday holding off for the crucial US non-farm payrolls number, a key measure of unemployment in the world's biggest economy that has the potential to shift market sentiment.

But over the week local stocks still climbed higher, as concerns about a slowdown in the global economy eased.

For the week, BHP Billiton shares gained 64?, at $32.09, as BHP Mitsubishi Alliance and unions returned to the negotiating table in an effort to end an 18-month dispute over a new industrial agreement for the company's Bowen Basin mines.

David Jones lost 13? at $2.46, after one of the strangest weeks in Australian corporate history, where a mysterious British private equity firm placed a $1.65 billion takeover offer for the troubled retailer, sparking an investigation by the corporate watchdog.

Echo Entertainment gained 5?, at $4.33, and Perpetual climbed 10?, at $23.00, after a move by regulators to allow Perpetual to lift its potential stake in Echo raised the possibility that other shareholders might gain approval to lift their stakes.

Flight Centre rose $1.57, at $20.50, after the company upgraded its full-year profit guidance due primarily to the continuing robust market for corporate travel.

Billabong finished the week 10? higher after putting on 13? yesterday.

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