Prospect of rate cut buoys market

Despite a string of high-profile profit downgrades last week the sharemarket had its best day in months yesterday, as investors looked forward to a rate cut this afternoon from the Reserve Bank.

Despite a string of high-profile profit downgrades last week the sharemarket had its best day in months yesterday, as investors looked forward to a rate cut this afternoon from the Reserve Bank.

The local bourse enjoyed its highest monthly close since August, helped by banking and resource stocks, with traders shrugging off news that the US economy had grown by less than expected in the March quarter.

For April, the ASX200 made a small gain of 1.4 per cent - its fourth consecutive monthly gain. So far this year, the bourse has grown 8.4 per cent.

The S&P/ASX200 index rose 34.5 points, or 0.8 per cent, to 4396.6, while the All Ords gained 33.8 points, or 0.8 per cent, to 4467.2.

Sebastien Galy, a strategist at Societe Generale, said the market enjoyed a solid lift - despite profit downgrades last week from names such as Newcrest, JB Hi-Fi, and Seven West Media - because Friday's weak American gross domestic product data had increased the chances for more quantitative easing by the US Federal Reserve, which increased global risk appetite.

But the chief currency strategist at Commonwealth Bank, Joe Capurso, said further quantitative easing looked unlikely.

"We expect the US economic recovery to continue but remain patchy and vulnerable to external shocks," he said.

"While some US data such as retail sales and home building are gathering momentum, real household incomes and government spending remains very weak ... we do not think the Fed will be in a hurry implement QE3."

Meanwhile, on the eve of the Reserve Bank's expected rate cut, the Housing Industry Association weighed into the debate, calling for the central bank to slash the cash rate by 50 basis points in one hit.

This followed a survey that showed new home sales had fallen to their lowest level in more than a decade.

The industrial services company Spotless was up 10? at $2.56 after it agreed to a takeover by private equity firm Pacific Equity Partners, at $2.71 a share.

The troubled miner Kagara has appointed voluntary administrators. The miner's shares have been in a trading halt at 12? for more than a week after plunging more over 68 per cent in the past three months.

National Australia Bank shares climbed 8? to $25.23 after it said it would restructure its loss-making business in Britain.

The other banks were all higher. Commonwealth Bank was up 38? at $51.97, ANZ was up 25? at $23.91 and Westpac was up 14? at $22.73.

Among the big miners, BHP Billiton was 66? higher at $35.55, Rio Tinto was 92? higher at $66.35 and Fortescue Metals was 1? higher at $5.64.

The Australian dollar climbed nearly a full US cent as global markets priced in the possibility that the US Fed could embark on a new round of economic stimulus. The local dollar was trading at US104.5?, up from US103.64? on Friday.

National turnover was 1.97 billion shares worth $3.69 billion.