Investors welcome hefty drop in the dollar

The benchmark S&P/ASX200 index was up 19.4 points, to 4272.7, while the broader All Ordinaries index was up 17.9 points, at 4364.9.

The local bourse enjoyed a sizeable hand from the financial sector, with the big banks accounting for 8 points of the 19.4 point rise. National Australia Bank was the standout performer, gaining 29?, or 1.2 per cent, to $24.39.

China's manufacturing activity slipped to a four-month low in March, with HSBC's preliminary Purchasing Managers Index dipping to 48.1 from 49.6 in February. It marked the fifth month China's manufacturing activity contracted. A reading above 50 indicates industry is expanding, a reading below suggests it is contracting.

The dollar shed more than US1? on the news, after recovering some lost ground of recent days, dropping from US104.88? to a low of US1.03.76?, its lowest since January 20. By 5pm, it had rebounded slightly to US104.17?.

A foreign exchange strategist at ANZ, Andrew Salter, said investors' concerns about an abrupt slowdown in China was largely behind the fall.

"This data is certainly consistent with a slowdown, but it is not consistent with a hard landing," he said. "The Chinese authorities were attempting to craft this sort of outcome anyway, to promote more stable inflation."

Despite the large fall in the dollar, the sharemarket outperformed other stocks in the region. But according to IG Markets strategist Stan Shamu, this was not surprising.

"A high Aussie dollar has been one of the main reasons for the local market's underperformance for a while now," he wrote.

Investment bank Macquarie Group surged 84?, or 3 per cent, to $29.11, while QBE Insurance jumped 28? to $13.90.

Gold major Newcrest advanced 58?, or 2.02 per cent, to $29.35, breaking a three-day decline that wiped 5 per cent off its share price.

The spot price of gold in Sydney was $US1648.90 per ounce, down $US1.70.

Sigma Pharmaceuticals was a standout performer. The company's stock surged 3.5?, or 5.7 per cent, to 65?, after it reported a net profit of $49.17 million for the 12 months to January 31, a marked improvement on the loss of $235.38 million in the prior year.

David Jones continued to decline, losing 3? to $2.40, but rival Myer added 2? to $2.26. Tabcorp rose 1? to $2.67, after raising $250 million from the bond market, part of which will pay off debt.

Meanwhile, Australia's central bank has signed an agreement with its counterpart in China allowing for up to $30 billion to be exchanged between the two banks.

The RBA says the purpose of the agreement between the Reserve Bank and People's Bank of China is to support investment between the countries.