THE sharemarket closed at its highest for the year on Thursday, thanks to some end-of-year housekeeping by fund managers and some positive news from the Bank of Japan.
The benchmark S&P/ASX 200 Index added 16.3 points to 4634.1 while the broader All Ordinaries rose 13.4 points to 4646.6.
Most economists welcomed news that Treasurer Wayne Swan had admitted that a federal budget surplus was no longer achievable.
"This announcement should not surprise any rational-thinking analyst, merely confirming that this increasingly political commitment was not prudent during these uncertain economic times," TD Securities' head of Asia Pacific research, Annette Beacher, said.
Currency strategists said the dollar should not suffer sustained losses as a result.
"While overall it is a bigger political than economic story, a somewhat less-contractionary fiscal stance should not be a headwind for the dollar," Westpac strategist Sean Callow said.
The local market shrugged off a weak lead from Wall Street on Thursday after some cracks appeared in the US fiscal cliff negotiations, but the dollar weakened slightly to US104.75¢, from US104.84¢ earlier. The currency has fallen nearly 1 per cent this week.
Meanwhile, the Bank of Japan eased monetary policy by expanding its asset-buying and lending program, topping it up by ¥10 trillion to ¥101 trillion by a unanimous vote, expanding stimulus for the third time in the past four months.
The move was widely expected in response to intensifying pressure from incoming premier Shinzo Abe to deliver bolder steps to beat deflation.
Market watchers said much of the recent rise in the ASX 200 - nearly 7 per cent since its recent low on November 16 - could be attributed to fund managers buying up stocks before the end of the year.
"A lot of fund managers have been overweight in cash heading into year's end . . . [even though] we've had positive returns on the market for the last seven months," David Liu, head of research at ATI Asset Management, said. "So the people that were waiting for a dip, and waiting to buy the dip leading into the end of the year, haven't been able to do that . . . so a lot of people are having to utilise their cash."
Financial stocks led the day's gains, with all the big banks finishing higher.
ANZ closed 16¢ higher at $24.80, Commonwealth Bank was 18¢ stronger at $61.51, Westpac added 17¢ to $25.97 and National Australia Bank finished 8¢ higher at $24.88.
In contrast, big resource stocks finished lower, with Rio Tinto down 41¢ to $65.30, BHP Billiton shed 2¢, at $37.04, and Fortescue Metals slipped 16¢ to $4.50.