Jobs plan brings glimpse of hope

SIGNS of uncharacteristic conciliation in US politics have given markets something to be hopeful about, even in the face of a grinding global economic slowdown.

The markets continue to grapple with an increasingly downbeat outlook for global growth, mostly on concerns about Europe's sovereign-debt crisis and its continued bank balance-sheet problems.

The Australian sharemarket initially rallied on US President Barack Obama's highly anticipated jobs plan, but pared back gains in afternoon trading.

This left the benchmark S&P/ASX 200 Index up just 6.7 points, or 0.2 per cent, to close the week at 4194.7 points. For the week, the Australian market lost 1.1 per cent, the first retreat in three weeks. The dollar also gave up ground, for the first week in four, trading last night at $US1.0628.

President Obama yesterday called on US Congress to pass a jobs plan that would inject a bigger than expected $US447 billion ($A421 billion) into the economy through infrastructure spending, subsidies to local governments and slashing payroll taxes paid by workers and small-business owners.

In his speech announcing the jobs package, Mr Obama admitted that economic growth had stalled in America. With the Federal Reserve's options to manipulate interest rates and money supply to stimulate growth largely exhausted, many economists would agree that only fiscal action can re-energise growth in the short-to-medium term.

Republican Eric Cantor, the House majority leader, yesterday signalled a willingness to consider at least some of the measures, providing much-needed confidence for global markets.

Inflation in China retreated from a three-year high last month, reducing concerns that state planners might have to raise interest rates. Official figures showed its consumer price index rose by 6.2 per cent over August, compared with a 6.5 per cent rise in July.

Australia, meanwhile is grappling with a slew of mixed data on how the economy is faring.

Economic growth surprised on the upside, with real gross domestic product increasing by 1.2 per cent in the June quarter. At the very least, this suggests the economy has entered the current period of global uncertainty in good shape.

Still, crucial labour market figures disappointed, with the unemployment rate jumping to 5.3 per cent in August, up from 4.9 per cent two months earlier. Given labour-force data is drawn from monthly figures, some argue it provides a better snapshot of the economy.

UBS head of investment strategy George Boubouras said sharemarket valuations were attractive for long-term investors. However, defensive stocks - stocks that perform well during economic slowdowns - are starting to become expensive.

''Fundamentals remain secondary to the many global macro headwinds,'' Mr Boubouras said.

In Britain, the Bank of England this week resisted pressure for a fresh round of funds to be injected into the economy as it left interest rates at a record low of 0.5 per cent, where they have been since March 2009.

The central bank also chose not to increase its quantitative easing program.

Spot gold yesterday recovered $US27.60 to $US1873 an ounce, still well below the record high of $US1921.15 hit this week.