Market edges up, but 'cliff' fears still weighing it down

THE sharemarket has closed nearly 1 per cent higher for the week, despite news that US House Republican leaders had walked away from their "plan B" compromise for the country's fiscal cliff negotiations.

For the week, the benchmark S&P/ASX 200 Index rose 40.5 points, or 0.8 per cent, to 4623.6, while the broader All Ordinaries rose 40.2 points, or 0.8 per cent, to 4635.2.

The local market had performed strongly since Monday, and charged higher again on Friday morning.

It rallied to a fresh 17-month high of 4658.7 points on Friday on anticipation US leaders would strike a fiscal cliff deal before Christmas, thereby allowing the country to function properly in 2013.

But by midday on Friday it emerged that the Republican Party was no longer going to support its own deal - which included a suggestion that taxes rise only for those with an annual income of $1 million or more - and the S&P futures dropped 2 per cent in the blink of an eye, to 1391 (March contract), with global risk assets tumbling.

The ASX 200 was knocked sideways, dropping nearly 50 points from its daily high, to end the day 10.5 points lower overall.

Commonwealth Bank strategist Philip Brown said the events were a big setback, with the bond market rallying accordingly.

"The US 10-year treasury rallied about 5 basis points on the news. Australian rates have fallen about 3 basis points in sympathy with the US move," Mr Brown said. "We are loath to speculate about what will happen from here, but an 'over the cliff' scenario is becoming more and more likely as time passes."

IG Markets analyst Stan Shamu said in a note to clients: "It is clearly all about the fiscal cliff at the moment. With House Republican leaders seeming quite far apart on the proposal and only meeting again after Christmas, fears that we are still far from a deal have become apparent."

Meanwhile, the New York Stock Exchange was bought by a little-known rival - the 12-year old IntercontinentalExchange, headquartered in Atlanta - for $US8 billion.

It comes after the ASX was forced to abandon its merger with the Singapore Exchange last year, after the federal government said it was not in the national interest.

For the week, ANZ rose 30¢, or 1.2 per cent, to $24.95, with representatives from the bank predicting local and global economic conditions would remain soft in 2013, with political uncertainty adding to concerns.

Billabong slipped 11¢, or 11.8 per cent, to 82.5¢. The surfwear retailer's share price plummeted on Thursday after it slashed its earnings forecast and said it was considering its

fifth - and lowest - takeover offer in 10 months.

Commonwealth Bank rose 34¢, or 0.5 per cent, to $62. The bank is taking control of Aussie Home Loans, increasing its stake to 80 per cent and extending its position as the country's No.1 home lender.

Qantas rose 6.5¢, or 4.7 per cent, to $1.46 after the competition watchdog approved plans by the airline to more closely integrate its operations with Jetstar and gave tentative approval for an alliance with Emirates.

Telstra rose 9¢, or 2.1 per cent, to $4.34 after the watchdog said the telco's proposed acquisition of the smaller Adam Internet would reduce competition in phone and internet services.

Whitehaven Coal rose 26¢, or 8.2 per cent, to $3.44 after it finalised a $1.2 billion debt facility that shored up funding for its Maules Creek coal project.