Market treads water as US holds breath

AUSTRALIA'S sharemarket this week failed to recoup last week's $36 billion fall, with stocks losing their pulse ahead of a key speech from Federal Reserve chairman Ben Bernanke.

The S&P/ASX 200 Index finished slightly in the red yesterday, falling 12.8 points, or 0.3 per cent, to 4200. Trading was mostly flat this week after the market shed 149.3 points or about $36 billion on Friday last week.

Mr Bernanke was set to speak last night at a central bank conference in Jackson Hole, Wyoming, where last year he hinted at the launch of QE2 - the Fed's $US600 million bond-buying program to kick-start a faltering economy. Weak housing and factory activity figures revealed this week that the US recovery was far from gaining traction.

But investors were not betting that Mr Bernanke would unveil another round of quantitative easing or QE3, or use any tools in the Fed's depleted armoury to head off a recession in the world's biggest economy. The gloomy outlook was reflected on Wall Street on Thursday night, with the Dow Jones Industrial Average shedding 170.89 points, or 1.5 per cent, to 11,149.82, and the broader S&P 500 Index falling 18.33 points, or 1.6 per cent, to 1159.27.

Gold, regarded as a haven from falling markets and currencies in trouble, rose $US26.80 to $US1772.50 an ounce.

AMP chief economist Shane Oliver said he expected Mr Bernanke's speech to be a ''non-event''.

''Bernanke will probably say we are expecting growth to pick up a little bit in the second half of this year and inflation today is higher than it was a year ago than when we announced QE2, therefore we are better off waiting to see how things turn out.

''By the same token he'll say the US economy has come in a lot weaker than expected and that the Fed stands ready to implement a whole range of options, including QE3 if need be.''

CommSec chief economist Craig James said ''nobody is wanting to get too far ahead of themselves'' while uncertainty clouded world markets.