Flush investors may counter Europe effect

AUSTRALIA'S sharemarket is expected to open flat or slightly lower today after more bad news from Europe.

AUSTRALIA'S sharemarket is expected to open flat or slightly lower today after more bad news from Europe.

A forecast released by France's state statistics agency Insee on Friday predicted that the nation's economy would shrink this quarter and the first quarter of next year, putting it into a recession.

The news helped send European equities markets lower, with London's FTSE 100 finishing down 0.25 per cent at 5387.34 and Paris's CAC 40 falling 0.88 per cent to 2972.30 during Friday's session.

Germany's DAX 30 dropped 0.50 per cent to 5701.78.

However, US markets fared better, with the S&P 500 climbing 3.91 points, or 0.32 per cent, to 1219.66, and the tech-heavy Nasdaq Composite adding 14.32 points, or 0.56 per cent, to 2555.33.

The Dow Jones Industrial Average slipped 2.42 points, or 0.02 per cent, to close at 11,866.39 on Friday.

The ratings agency Moody's cut Belgium's credit rating by two notches - from AA1 to AA3 - on Saturday, citing tough conditions for European countries to borrow money.

The AMP chief economist, Shane Oliver, said the flow of negative news would probably result in Australian shares opening flat or slightly lower today.

At the close on Friday, the benchmark S&P/ASX 200 index was up 19.4 points, or 0.47 per cent, at 4159.2, while the broader All Ordinaries index was up 21 points, or 0.5 per cent, at 4218.8.

But Mr Oliver said recent positive news from the US might help fuel a "Santa Claus rally" during this week and beyond. "Normally from about mid-December, you start to see the so-called Santa Claus rally," he said.

"That's largely because, even in years where there is lots of worry, investors start to look forward to hopefully a better year ahead."

More bad news from Europe could stall the expected rally. But, with several Australian companies scheduled to pay dividends this week and former shareholders in Foster's receiving their payment from the company's takeover, there was potential for a sizeable injection of cash into the market this week, Mr Oliver said.

A rally in stocks could help lift the dollar, he said.