Rally notches up eighth day of gains but dollar on the slide

AUSTRALIAN shares continued their strong rally this week thanks to solid US and Chinese manufacturing data, and after the Bank of Japan announced an aggressive monetary easing program.

But the Bank of Japan move, which included an unlimited ¥13 trillion ($140 billion)-a-month asset purchase program, encouraged fresh talk of "currency wars" and saw the Australian dollar lose nearly a cent in value.

For the week, the benchmark S&P/ASX 200 Index rose 64 points, or 1.3 per cent, at 4835.2, while the broader All Ordinaries Index rose 64.3 points, or 1.3 per cent, at 4858.9.

The local market jumped half of 1 per cent on Friday - marking the eighth-straight day of gains - after the Nikkei 225 came alive the previous day, a response to Japan's plan to pump billions of dollars into its economy to end years of deflation.

Market watchers said investors were rotating into defensive stocks by the end of the week, with consumer discretionary climbing 0.7 per cent on Friday, and consumer staples and telecommunications stocks rising 0.5 per cent.

But high-yielding financial stocks enjoyed the biggest gains, with the sector up 0.8 per cent on the last trading day before the long weekend.

Commonwealth Bank retested an all-time high of $63.70 before closing at $63.59, up 0.5 per cent for the day, while Westpac closed 1.7 per cent higher at $27.55, and Macquarie rose 2.5 per cent at $37.99.

"The Australian market has followed the Japanese lead, and while the Australian dollar has found no love - printing a session low of US104.39¢ - the equity market continues to find buyers," Chris Weston, IG Markets' market strategist said.

"Sector wise, with the exception of some solid moves in the industrial space, it was another day of bidding up yield plays and keeping positioning relatively defensive."

The Australian dollar dropped to its lowest level in more than three weeks on Friday, trading at US104.49¢ by 5pm on Friday, down from US105.14¢ on Thursday.

But currency strategists said news that North Korea planned to carry out another nuclear test was also weighing on sentiment.

Commonwealth Bank currency strategist Joseph Capurso said that could explain some of the dollar's fall in the past two days.

"That has pulled down most Asian currencies and, because of the very high correlation between Asian currencies and the Aussie dollar, it has pulled the Aussie dollar down as well," he said.

For the market on Friday, the sleep disorder specialist ResMed gained 30¢, or 7 per cent, at $4.58, after posting a 24 per cent increase in its second-quarter net income to $74.84 million, ahead of market expectations.

Construction giant Leighton Holdings climbed 92¢, or 4.8 per cent, to $20 after announcing its subsidiary Thiess had won a $175 million maintenance contract with Sydney Water.

But in the resources sector, global miner BHP Billiton was 6¢ weaker at $37.10, and Rio Tinto shed 23¢ to $66.06.

Atlas Iron nudged up 0.5¢ to $1.575 after meeting expectations with its second-quarter production results. It said it could beat its full-year sales guidance after shipping more lower-grade iron ore than expected in the December quarter.

Whitehaven Coal was steady at $3.50, after it won state planning approval for its Tarrawonga Coal Mine Expansion Project in north-west New South Wales.

Specialty Fashion Group rose 27¢, or 38.6 per cent, at 97¢, after the womenswear retailer said it no longer sold cheap China-made copies of overseas designs, and that was a major reason behind a huge jump in projected first-half profit.