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…

Why did the ASX 200 hit an 11-week high and what drove the rally?

The S&P/ASX 200 climbed 51.1 points (1.2%) to 4,272.6, its highest close since mid-May, driven by renewed confidence in global growth and a broad-based rally led by mining stocks. All of the top 50 stocks and every sub-index advanced on the session.

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

The materials sub-index jumped 2.4%, industrials added 1.6%, energy stocks gained 1.1% and financials rose 0.7%, showing a broad sector lift rather than a narrow market move.

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

BHP Billiton rose 70 cents (2.2%) to $32.00, Rio Tinto surged $2.12 (4.1%) to $54.13, and Fortescue Metals climbed 8 cents (1.9%) to $4.26. The article also notes Fortescue secured US$1.5 billion in short-term loans to help fund cost overruns at its Pilbara mine expansion.

What happened to Telstra and the big four banks in the rally?

Telstra advanced 5 cents (1.2%) to $4.07, its highest close since December 2008. Among the big four banks, ANZ rose 22 cents (0.9%) to $23.56, Commonwealth Bank added 40 cents (0.7%) to $56.38, NAB gained 17 cents (0.7%) to $25.16 and Westpac firmed 15 cents (0.6%) to $23.45.

How was the Australian dollar performing as the market rallied?

The Australian dollar was hovering near a four-month high against the US dollar, buying US$1.056. It was also quoted at 85.37 euro cents, Y82.74 and 67.51 pence.

Did European developments influence the Australian market rally?

Yes. European equities were showing healthy gains and investors were hoping for signals on when central banks would act to stimulate growth and ease the eurozone crisis. The European Central Bank had offered to step in and buy bonds to bring down Spain and Italy's borrowing costs, which helped rebuild expectations for decisive moves.

Is the recent rally on the ASX likely to be sustained?

Market commentators cautioned that the rally's durability depends on signals from major overseas economies. Peter Wright of Bizzell Capital Partners said Europeans are finally discussing comprehensive policy responses, but a distinct lack of turnover and volume suggests the market isn’t totally convinced yet.

What are the main takeaways for everyday investors from this market update?

The update highlights a broad-based ASX rally led by mining stocks and lifted across sectors, with big miners and banks posting gains and the Aussie dollar near a four-month high. However, investors should note commentary that low trade volumes and dependence on overseas economic signals mean the rally may need stronger, sustained global support to continue.