Citigroup is upbeat on ASX Ltd's response to competitive threats, and expects the bourse to post a strong dividend for the first half.

In broker news this morning, Citigroup has upgraded the Australian Securities Exchange Ltd to buy from neutral on its bullish outlook for the market and likely support for high yielding stocks.

"With our strategists’ relatively bullish on market returns for calendar 2013, we see reasonable cause for optimism that retail money will flow back into equity markets and funds, potentially lifting cash market velocity out of its current slump. We also expect ASX’s attractive dividend yield to further appeal to investors in the current low interest rate environment,” the broker noted in a report.

The broker is expecting ASX to pay out a dividend of 86.6 cents per share for the first half of 2013. This combined with its forecast for the second half should ensure the stock is well supported in the current environment.

On the competitive threats front, Citigroup believes ASX has responded relatively well, especially to the broad range of threats to its cash equities execution revenues from the likes of Chi-X, dark pools and the broker internalisation of trades.

"This, combined with a potential lift in trading margins, leads us to lift our call on ASX to buy, with a new target price of $38.00, up from $29.00,” Citigroup said.

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