China jitters deflate market buoyancy

Three weeks ago, when the European Central Bank unleashed its "big bazooka" plan to save the eurozone from breaking up, US and European markets jumped 3 per cent.

But any chance of a rally on the market was rubbed out by a big fall in the price of iron ore that stoked fears of a slowdown in Chinese demand.

This week, it was the Bank of Japan's turn. Japan's central bankers said they would add an extra 10 trillion yen to the country's asset purchase program to stimulate growth. The plan was designed, in part, to help Japan's currency lose value against the greenback and euro (Japan is an export-oriented economy, so if the value of its currency goes down, its exports should become cheaper).

Immediately after the announcement, the yen did lose value against its major trading partners, helping Japan's sharemarket surge 1.6 per cent higher, with markets across Asia doing pretty much the same.

And for a time it looked like Australia's market might reach its highest level for the year breaking through the 4435-point level it made on May 2 but the rally proved short-lived.

Within 24 hours, local shares were knocked sideways by dispiriting news of Chinese economic activity. It came in the form of Thursday's flash HSBC Chinese PMI index, a measure of the level of manufacturing activity, which provided the first glimpse of September's conditions for Chinese industry.

The index rose slightly to 47.8 from 47.6 in August, pointing to a month in which a slide in manufacturing activity was slowed, but not halted.

It was enough to knock the steam out of markets. The next day, the yen had risen again against the greenback and the euro, the effects from the big announcement already having worn off.

Analysts said it seemed investors were hoping for a greater improvement (a reading below 50 shows economic growth is slowing).

Yesterday, the market made modest ground, with the benchmark S&P/ASX 200 Index closing up 11.1 points at 4408.3.

A senior trader for CMC Markets, Tim Waterer, said the bourse was guided by the disappointing data from China.

"Accentuation of the negative themes this week has served to halt market momentum," Mr Waterer said in a research note.

Financial stocks gained 0.4 per cent yesterday, with three of the big retail banks ending in positive territory. ANZ rose 10? to $24.84 after it said it had sold its wholesale mortgage distribution business, Origin Mortgage Management Services. Commonwealth Bank gained 18? to $55.15 and Westpac closed 33? firmer at $24.62. NAB slipped 13? to $25.40.