InvestSMART

Dollar surfs high hopes

A WAVE of optimism ran through markets yesterday, pushing the Australian dollar and sharemarket higher, on news Chinese authorities would reduce the reserve requirements for the country's banks.

A WAVE of optimism ran through markets yesterday, pushing the Australian dollar and sharemarket higher, on news Chinese authorities would reduce the reserve requirements for the country's banks.

It was coupled with news the US Federal Reserve, leading a group of six central banks, had reduced the access fee to emergency US dollar funding a boon for Europe's troubled banks.

The dollar shot skywards, soaring nearly US3? to $US1.03 in a matter of seconds, before settling on $US1.02 by close of day. The sharemarket added about $30 billion of value, marking a fourth straight day of gains.

But despite the euphoria, investors remain wary that little in Europe has changed, and with four weeks to go until the end of a horror year caution still reigns.

The benchmark S&P/ASX 200 Index closed at 4228.6, up 2.6 per cent, or 108.8 points higher.

Mining stocks enjoyed their best day in two months after inflation concerns in China eased. Rio Tinto rose $2.97, up 4.72 per cent, to $65.92, and BHP Billiton gained $1.43, up 4.1 per cent, to $36.35.

Markets applauded co-ordinated efforts by the European Central Bank and the central banks of the United States, Britain, Canada, Japan and Switzerland to make it cheaper for banks to borrow emergency funds and to sort out liquidity problems that are particularly affecting European banks.

The move came in advance of potential strains in US dollar funding, aimed at stopping a credit freeze that would make banks reluctant to lend to customers and to each other as happened during the 2008-09 financial crisis.

"Up until now, people have been very concerned that European policymakers just don't get it that they keep thinking that if they make these long-term goals and promises the market's going to just believe them," said Chad Padowitz, chief investment officer at Wingate Asset Management. "[But] their actions on Wednesday night were one of the first steps of somebody blinking first."

Investors got a further boost to confidence from strong US employment data, with 206,000 jobs created in November, the biggest monthly rise this year.

But Gerard Minack, chief economist at Morgan Stanley, said the central banks' efforts would be unlikely to fix the structural problems of the global financial system, and would not address Europe's problems.

"This is a palliative measure designed to ease the symptoms of what remains the big fundamental issues: pressure to de-lever throughout the developed world, overlaid with the contagion in Europe," he said.

On the local market, the best performing sector was metals and minerals, up 4.1 per cent, but all sectors finished positively.

The best performer among the top 100 companies was drilling services provider Boart Longyear, after it confirmed full-year guidance for earnings before interest, tax, depreciation and amortisation of $329.98 million. Its shares climbed 30?, or 10.1 per cent, to $3.27.

Shares in industrial services company Spotless were up 11?, or 4.8 per cent, to $2.40, after it received an increased takeover bid from private equity group Pacific Equity Partners. The revised bid included an indicative price of $2.68 per Spotless share, up from $2.63 a share.

Virgin Australia shares were up 1? at 35? after the competition regulator gave final approval for the airline's tie-up with Singapore Airlines.

The price of gold in Sydney closed at $US1745.41 an ounce, up $US22.81 from Wednesday.

National turnover was 2.41 billion shares worth $6.12 billion, with about two stocks up for every one that fell.

Meanwhile, Australian mining investment looks set to contribute more than 1.5 per cent growth to GDP for the September quarter, one week before the Reserve Bank meets to decide on interest rates.

"There's a massive rise in engineering construction going on. Engineering construction numbers were up 22 per cent in the quarter, and up 50 per cent over the year," said Paul Bloxham, chief economist at HSBC.

He forecast GDP growth in the September quarter of 1.1 per cent, after key parts of the economy net exports, public demand, and inventories contract.


Join the Conversation...

There are comments posted so far.

If you'd like to join this conversation, please login or sign up here

Related Articles