Investors take heart from less gloomy China outlook

The sharemarket snapped a six-day losing streak yesterday after new data showed Chinese economic growth, for the June quarter, had come in bang on economists' expectations.

The sharemarket snapped a six-day losing streak yesterday after new data showed Chinese economic growth, for the June quarter, had come in bang on economists' expectations.

It may have been the slowest annual growth rate in three years, at 7.6 per cent, but investors were unconcerned.

Instead, they cheered because there were no surprises, and because China's authorities appeared to be successfully manufacturing a slowdown in economic activity - the vaunted "soft landing" - while curbing inflation without killing growth.

The news lifted local resource and financial stocks and helped the sharemarket close the week on a high, delivering a week's end reprieve to investors who had spent the past six days watching the bourse track backwards.

Yesterday, the S&P/ASX 200 index gained 14.2 points, or 0.35 per cent, at 4082.2. But for the week, it lost 75.6 points, or 1.8 per cent.

"If [China's economic growth figure] came in at much lower than consensus forecast [then] you would have seen a negative reaction," the head of asset management at HSBC Australia, Geoff Pidgeon, said.

"China is in a trade-off between inflationary pressure, asset bubbles, and growth ... That's why they've really put the brakes on growth over the last year ... [and] we think they can actually handle this balancing act quite well."

The Australian dollar strengthened on the news, but fell in late trade, unable to hold onto the early gains. It closed at US101.58?, down from US101.64?.

Yesterday evening, European sharemarkets had advanced in opening trade as dealers welcomed the news, and set aside news of a Moody's ratings downgrade for debt-laden Italy.

An IG analyst, Cameron Peacock, said there was a collective sigh of relief around global markets following the China news, with short positions established over the previous 24 hours being quickly unwound.

"[On Thursday] you saw big names in BHP and Rio getting getting sold off quite heavily, and I said ... we were either going to be justified in the sell-off, or it was going to be seen as an over-reaction," Mr Cameron said.

"Find me another country that's growing at 7.5 per cent growth domestic product on the base size of what China is, it just seems a massive beat-up to me. Doom and gloom is the default position of the market at the moment."

Among the miners, BHP Billiton finished 8? higher at $30.48 after a three-year closing low on Thursday. But Rio Tinto lost 17? at $54.08.

The banks all rose. Westpac gained 18? at $22.05, National Australia Bank gained 14? to $23.60, ANZ increased 17? to $22.35 and Commonwealth Bank rose 26? to $53.77.

In the retail sector, womenswear retailer Specialty Fashion shed 2? to 50? after it warned full-year earnings would halve.

Shares of paint maker Duluxgroup rose 1? to $3.04 after it again extended a takeover timetable for its bid for building products supplier Alesco Corporation, which closed 2? weaker at $1.97.

with agencies

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