Rally takes index to 11-week high

THE sharemarket has had its highest close since mid-May, led by mining stocks, as renewed confidence about global growth prospects stoked a broad-based rally.

By InvestSMART · 7 Aug 2012

By InvestSMART ·
7 Aug 2012

Comments

THE sharemarket has had its highest close since mid-May, led by mining stocks, as renewed confidence about global growth prospects stoked a broad-based rally.

All the top 50 stocks advanced, as did all the sub-indices.

The S&P/ASX 200 Index climbed 51.1 points, or 1.2 per cent, to 4272.6.

The materials sub-index jumped 2.4 per cent, industrials added 1.6 per cent, energy stocks gained 1.1 per cent and financials rose 0.7 per cent.

BHP Billiton put on 70?, or 2.2 per cent, to $32 and Rio Tinto surged $2.12, or 4.1 per cent, to $54.13.

Fortescue Metals, Australia's third-biggest iron ore exporter, rose 8?, or 1.9 per cent, to $4.26. The miner has secured $US1.5 billion in short-term loans to help fund cost overruns at its Pilbara mine expansion.

The dollar, meanwhile, was hovering near a four-month high against the greenback, buying $US1.056. It was also buying 85.37 euro cents, Y82.74 and 67.51 pence.

European equities were last night showing healthy gains despite opening weaker. Investors were hoping for further signals on how soon central banks would act to stimulate economic growth and ease the eurozone crisis.

The European Central Bank last week offered to step in and buy bonds to bring down the borrowing costs of Spain and Italy. The offer was heavily conditional and markets were originally disappointed by the lack of immediate action, but expectations of decisive moves have now started to rebuild.

Telstra and the big banks all gained, as stock prices recovered almost all of Friday's steep falls.

Telstra advanced 5?, or 1.2 per cent, to $4.07, its highest close since December 2008.

ANZ gained the most among the big four banks, rising 22? or 0.9 per cent, to $23.56. Commonwealth added 40?, or 0.7 per cent, to $56.38, with NAB increasing 17?, or 0.7 per cent, to $25.16, and Westpac firming 15?, or 0.6 per cent, to $23.45.

The durability of yesterday's rally, however, remained subject to the signals coming from big overseas economies, said Peter Wright, director of Bizzell Capital Partners.

"The Europeans are finally talking about a comprehensive policy-style response," he said. "That said, we still have a distinct lack of turnover and volume. That tells you the market isn't totally convinced."

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What caused the recent ASX rally that pushed the S&P/ASX 200 to an 11‑week high?

The rally was driven by renewed confidence about global growth prospects and strong gains in mining stocks, which helped the S&P/ASX 200 climb 51.1 points to 4,272.6. All of the top 50 stocks and every sub‑index advanced on the day.

Which sectors led the market gains and by how much did they rise?

Materials led the advances, with the materials sub‑index jumping about 2.4%. Industrials added roughly 1.6%, energy rose about 1.1% and financials increased around 0.7%.

How did major miners such as BHP, Rio Tinto and Fortescue perform during the rally?

BHP Billiton rose about 2.2%, Rio Tinto surged about 4.1% (an increase of roughly $2.12), and Fortescue Metals was up about 1.9%, closing near $4.26, as mining stocks led the market rally.

What’s the significance of Fortescue Metals securing short‑term loans?

Fortescue secured US$1.5 billion in short‑term loans to help fund cost overruns at its Pilbara mine expansion. For investors, that highlights the company is accessing liquidity to progress a major project, but it also signals cost pressures on the expansion.

How did Telstra and the big four banks react to the market rebound?

Telstra advanced about 1.2% to $4.07, its highest close since December 2008. Among the big four banks, ANZ gained the most (about 0.9% to $23.56), Commonwealth rose about 0.7% to $56.38, NAB increased about 0.7% to $25.16 and Westpac firmed about 0.6% to $23.45.

Did currency moves play a role in the market environment?

The Australian dollar was near a four‑month high, buying about US$1.056 (and also trading around 85.37 euro cents, ¥82.74 and 67.51 pence). A stronger Aussie can affect exporters and miners, so currency strength is a relevant factor for investors watching resource stocks.

What were the recent developments in Europe and how might they affect Australian markets?

European equities showed healthy gains after the European Central Bank offered to buy bonds to lower borrowing costs for Spain and Italy. The ECB’s conditional bond‑buying offer initially disappointed markets, but expectations of more decisive policy moves have begun to rebuild, which helped risk sentiment globally and supported the ASX rally.

Is the rally likely to be sustainable, and what should investors watch next?

Market commentators cautioned that the rally’s durability depends on signals from major overseas economies. Peter Wright of Bizzell Capital Partners noted that while Europeans are discussing a comprehensive policy response, low turnover and volume suggest the market isn’t fully convinced. Investors should watch overseas policy actions, market volume and economic data for confirmation.