Resources lead upward surge

THE stockmarket rose to 19-month highs on Friday on the last full day of trading for 2012, buoyed by gains among resources stocks. The market is now up more than 15 per cent for the year and is on target for its best annual gain since 2009.

The benchmark S&P/ASX200 index was up 23.3 points, or 0.5 per cent, at 4671.3 on Friday, while the broader All Ordinaries index was up 23.9 points, or 0.51 per cent, at 4685.3. The market was expected to close lower this week amid nervousness about the US fiscal cliff negotiations, but investor sentiment improved when President Barack Obama cut short his holiday to try to strike a deal with Republicans in the US Congress.

Local stocks also gained strong momentum from rising iron ore prices. The biggest move came from iron ore miner Fortescue Metals, which posted big gains on Thursday after announcing it would restart the expansion of the Kings deposit at its Solomon iron ore mining hub. Fortescue shares closed another 11¢ higher at $4.64 on Friday.

The retail sector also helped keep the market buoyant after reports of relatively strong sales on Boxing Day. "The retail sector is having a good run following reports of record festive sales helped by low interest rates," an IG Markets analyst, Stan Shamu, said.

Investor sentiment may still fade away if a US political deal to avert the fiscal cliff crisis fails to emerge.

The US House of Representatives is due to meet on Sunday for urgent talks on a last-minute deal. Should a deal fail to emerge, equities market will come under pressure on Monday, according to Peter Dragicevich, a currency strategist at the Commonwealth Bank.

Saul Eslake, Australian economist with Bank of America Merrill Lynch, said the real economic effects of the fiscal cliff on Australia could be delayed but the impact on financial markets could be quick.

With the January 1 deadline just days away, experts say going over the "cliff" could take the world's biggest economy back into recession. The US Conference Board said that a similar decline occurred in August 2011 during debt ceiling discussions in Washington.

While most analysts are predicting the local effects of a crisis to be a downward pressure on Australian equities, Mr Eslake said there was a chance the dollar could rise, having more of a negative effect on the economy. "Instead of the dollar going down and providing a cushion for the economy, as it often does, the dollar could rise and thus compound the effects of a crisis." The Australian dollar traded higher earlier on Friday but settled at US103.77¢ at the close of Friday, down from US104.01¢ earlier in the week.

On the back of the improving iron ore price, Rio Tinto rose $1.08, or 1.65 per cent, to $66.53 on Friday. BHP Billiton rose 41¢, or 1.1 per cent, at $37.40. Retail stocks rallied on the back of improving holiday sales. JB Hi-Fi rose 9¢ to $10.35. Myer and David Jones were each 2¢ higher, at $2.15 and $2.43 respectively. Harvey Norman rose 4¢ to $1.925.

Across the Tasman, the New Zealand market hit a five-year high, with the NZX 50 rising 15.45 points to 4080.90, the highest close since December 2007, bringing its gain this year to 24 per cent.