RBA caution tempers market optimism

AUSTRALIAN stocks regained their momentum after stumbling at the start of the week, to close near a 22-month high.

The strong finish came as investors welcomed news that China had recorded better-than-expected trade data, fuelling optimism that its growth may be rebounding from its recent slowdown.

The benchmark S&P/ASX 200 Index gained 50.3 points, or 1 per cent, at 4971.3 points for the week, while the broader All Ordinaries Index rose 47.5 points, or 1 per cent, at 4989.4 points.

The Reserve Bank decided to keep the official cash rate on hold this week, at 3 per cent. But it said in a statement accompanying the decision that it had scope to cut rates if necessary. Then the RBA's statement on monetary policy, released on Friday, showed that it had lowered expectations for economic growth, and that it had revised up its outlook for unemployment growth.

The statement - which opened the door for interest rate cuts - saw the Australian dollar fall to its lowest level in more than three months.

On Friday the currency slipped to US102.56¢ briefly, its weakest level since October 24, before recovering to close on US102.98¢.

Economists said the statement - which highlighted subdued inflation, a weak employment outlook and expectations of below trend growth - suggested that another rate cut was on the cards.

"The RBA has hinted it is open to another easing," St George economist Janu Chan said. "If the run of data disappoints from now then there is a risk that the RBA will cut in March."

For shares on Friday, Arrium gained 5¢, at $1, despite taking a write-down of almost $500 million on the value of its steel division.

Australand Property Group slipped 7¢, at $3.40, after playing down the prospect of a successful takeover bid, following a 28 per cent jump in profits.

Blackham Resources surged 7.5¢, or nearly 70 per cent, at 22.5¢, after the junior gold explorer appointed Joseph Gutnick as its chairman and announced a $13 million funding deal. BHP Billiton rose 3¢, at $37.95, after the miner told workers at its Olympic Dam project about further planned job losses to slash costs.

Fortescue Metals rose 15¢, at $4.94, after agreeing to stop development of Iron Ore Holding's Iron Valley deposit in Western Australia.

National Australia Bank rose $1.02, at $29.02, after the bank said its priority in 2013 was to cut costs, even if it is on track to post a record $6 billion full-year cash profit.

News Corporation rose 13¢, at $27.43, even as the future of its Australian newspapers looked more uncertain and were partly blamed for an earnings downgrade.

Telstra slipped 3¢, at $4.62, after the telco said it was confident of achieving its full-year growth targets after more than 600,000 new mobile customers signed on in the first half.

Virgin Australia rose 0.5¢, at 43¢, as the competition watchdog flagged concerns about the airline's $35 million plan to buy a stake in budget airline Tiger Airways.