ECB's big bazooka no match for China fears

Whereas European and US markets leapt as much as 3 per cent after the ECB announced a new program to buy the bonds of troubled eurozone countries, Australia's sharemarket barely rose as post-boom fears dominated.

The dollar jumped by nearly US1?, hitting companies that earn a large portion of their profits in foreign currency.

"Ultimately the ECB plan must be good news for Australia as well, but for now people seem more fixated on the idea of a post-commodity boom economy, and what that's going to look like in the future," the head of research at National Australia Bank, Peter Jolly, said.

"It tells you that it hasn't simply been European issues depressing growth prospects, it's a unique thing to do with Australia and commodity prices and the Asian slowdown."

The ECB announced a new bond purchase program for debt-ridden European countries in a bid to fix Europe's banking crisis and prevent a break-up of the monetary union.

The Treasurer, Wayne Swan, said it was a "positive step towards putting Europe back on a sustainable footing".

The definitive steps saw Frankfurt (up 2.9 per cent), Paris (up 3.1 per cent), and London (up 2.1 per cent) jump higher, while in the US the S&P500 (up 2 per cent) and the Dow Jones (up 1.9 per cent) rose strongly.

Local investors were less enthused, failing to exploit rallies in Asian bourses where Shanghai (up 4.2 per cent), Hong Kong (up 2.4 per cent), and Japan (up 2 per cent) rose sharply.

But in a sign that local investors still welcomed the news from Europe, analysts said there was a small increase in risk appetite for both equity and bond markets.

"Clearly resource stocks have been belted in recent weeks and months, and you're seeing a bit of money coming back into them, as well as defensive and yield stocks," the managing director at UBS, George Kanaan, said.

"In this era when commodity prices are lower than they were, the Australian dollar needs to be lower. But the fact that it's not, and the fact that it rallied today, cuts a little bit into growth prospects," Mr Jolly said.

The performance of stocks was mixed, with local resource and energy sectors rising, while health stocks fell heavily and financial stocks lost ground.

"In the last few weeks, with iron ore prices slipping so much, that still is the dominant global story for Australian stocks," a DB analyst, Tim Baker, said.

"I guess you would expect the banks to do a little bit better when there's less financial system risk but yeah, it's a bit of a puzzle."

Bargain hunters targeted resource stocks yesterday, fearing they had been oversold and that commodities would remain at historically high levels despite recent heavy falls.