Good day for mining, dollar and gold

THE sharemarket broke a two-day losing streak, rising nearly 1 per cent yesterday after details of the European Central Bank's plans to buy euro bonds were leaked before its meeting last night.

By InvestSMART · 7 Sep 2012

By InvestSMART ·
7 Sep 2012

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THE sharemarket broke a two-day losing streak, rising nearly 1 per cent yesterday after details of the European Central Bank's plans to buy euro bonds were leaked before its meeting last night.

The dollar also soared more than half a cent after the release of monthly unemployment figures, which looked good on the face of it.

Every industry sector gained ground, except health stocks.

Overall, the benchmark S&P/ASX 200 index rose 34.1 points, or 0.8 per cent, to 4312.9.

After being beaten down for the past few days, mining stocks rebounded yesterday, with global miner BHP Billiton rising 29? to $31.34, and Rio Tinto climbing 82? to $50.16. Mid-tier iron ore miners also did well, with Atlas Iron jumping 4.2 per cent and Gindalbie surging 5.5 per cent.

Lynas Corporation skyrocketed 24.5?, or 41.2 per cent, to 84? after the rare-earths miner was granted a temporary licence for its controversial $US800 million rare-earths refinery in Malaysia.

But Fortescue Metals continued to lose value, dropping 15? to $2.97 on concerns over its about-face on expansion plans and the falling iron ore price.

New figures showed the unemployment rate fell unexpectedly to 5.1 per cent last month, from 5.2 per cent in July.

The number looked good initially, helping the dollar rise to US102.28 by the close of trade, up from US101.88.

But economists pointed out that the decline in unemployment was due to a falling participation rate a measure of the number of people who are either employed or actively looking for work which last month deteriorated to its lowest since November 2006.

"Were it not for the decline in participation in August, the unemployment rate would be standing at 5.4 per cent this month," Commonwealth Bank's James McIntyre wrote in a note to clients.

"Worse still, had the slump in participation over the past year not occurred, the unemployment rate would be clocking in at 6 per cent in August, instead of the spuriously comforting 5.1 per cent outcome."

For the day, Qantas shares were up 7.5?, or 6.7 per cent, at $1.20, after an agreement with Dubai-based Emirates that could help save its struggling international operations. The deal will leave London as Qantas' sole European destination.

Billabong rose 9.5? to $1.365 after the clothing retailer said it would formally consider a takeover after receiving its second offer in the space of six weeks.

Among other stocks, Australian-listed automatic teller machine supplier GRG International surged 2?, or 36.4 per cent, to 7.5? after it said it would acquire US-based ATM maker Triton for about $US25 million.

Gold closed in Sydney at $US1703.55 an ounce, up $US11.29 on Wednesday's closing price of $US1692.26.

National turnover was 1.98 billion securities worth $5.28 billion, with 519 stocks up, 403 down and 343 unchanged.

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Frequently Asked Questions about this Article…

Why did the Australian sharemarket rise nearly 1% yesterday?

The S&P/ASX 200 rose about 34.1 points to 4,312.9 after details of the European Central Bank's plans to buy euro bonds were leaked and monthly unemployment figures initially looked positive. Positive sentiment across most sectors (all except health) helped lift the market.

What drove the rebound in mining stocks, and how did major miners perform?

Mining stocks bounced back after recent weakness. Large miners saw gains with BHP Billiton trading at $31.34 and Rio Tinto at $50.16, while mid-tier iron ore miners like Atlas Iron and Gindalbie jumped (Atlas +4.2% and Gindalbie +5.5%). The rebound reflected improving sentiment for the resources sector.

Why did Lynas Corporation surge and what should investors know about the rare‑earths news?

Lynas Corporation jumped strongly after it was granted a temporary licence for its US$800 million rare‑earths refinery in Malaysia. For investors, the licence is a positive regulatory development for Lynas's processing plans and was the main catalyst for the sharp share move.

Why did Fortescue Metals shares fall and what risks should investors watch in iron ore stocks?

Fortescue fell to $2.97 amid concerns about its reversal on expansion plans and a weakening iron ore price. Investors in iron ore and mining stocks should watch company guidance on expansion and commodity price trends, which can drive large share swings.

How did the unemployment report affect the Australian dollar and what caveats did economists note?

The Australian dollar strengthened after the unemployment rate fell to 5.1% (from 5.2%), with the currency quoted at about US102.28 by the close (up from US101.88). Economists cautioned the improvement was partly due to a falling participation rate — the share of people working or actively looking — which had dropped to its lowest since November 2006 and can make the unemployment rate look better than underlying labour market conditions.

What corporate deals moved shares in Qantas, Billabong and GRG International?

Qantas shares rose after an agreement with Emirates that could help its international operations and will leave London as its sole European destination, with Qantas trading around $1.20. Billabong climbed after saying it would formally consider a takeover following a second offer. GRG International surged after announcing it would acquire US ATM maker Triton for about US$25 million.

What happened to the gold price and why might that matter for investors?

Gold closed in Sydney at US$1,703.55 an ounce, up US$11.29 from the prior close. A modest rise in gold can reflect investor demand for safe‑haven assets amid market moves; investors often watch gold as part of portfolio diversification or as a hedge against currency and macro uncertainty.

How broad was the market rally and what was the trading turnover?

The rally was broad-based with every industry sector gaining except health. National turnover was 1.98 billion securities worth $5.28 billion, with 519 stocks up, 403 down and 343 unchanged — indicating widespread buying interest across the market that day.