LOCAL shares rose for the second day to a three-week high after strong economic data from the US and Europe kicked off the year.
The market got a boost from strong gains in US equities as manufacturing and construction in the world's largest economy expanded at a faster pace than analysts had predicted.
Investors, keen to shrug off the gloom of last year, also cited market beating manufacturing data from China and a fall in unemployment in Germany as signals the global economy might be due to bounce back.
"Traders seem to have entered 2012 recharged, optimistic and seemingly ready to see the world through fresh eyes," IG Markets' Chris Weston said. "The risks are still very real, despite a good start to 2012, but the tape, for the time being looks positive and this will encourage further short covering."
At the close yesterday, the benchmark S&P/ASX 200 index was up 86.6 points, or 2.1 per cent, at 4187.8, and the All Ordinaries Index was up 84.3 points, or 2 per cent, at 4239.5, the highest since December 14.
Miners led the pack higher, adding 3 per cent after metals prices climbed overnight.
BHP Billiton surged 4.1 per cent to $36.22 while Rio Tinto climbed 2.9 per cent to $63.15, both closing at a three-week high.
City Index's Peter Esho said the boost was down to commodities prices "making up for their underperformance last year." But he cautioned the sharp gains were unlikely to be sustained for long. "There's still a bit more negative earnings news to flow through the market."
Energy stocks climbed after US oil prices rose to their highest point since May, fuelled by concerns over a supply disruption from Iran. Santos added 2.5 per cent to $12.65 and Woodside rose 2.3 per cent to $31.40.
Bandanna Energy ended up 1.6 per cent at 62? after the coal explorer announced it was hoping to get funding to develop its mines in Queensland's Bowen Basin as it pursued discussions with third parties.
Even the financial sector found some joy, gaining 1.8 per cent, despite investor concerns the imminent rollover of $120 billion of debt in Europe could put pressure on banks' funding sources. The big four banks added 0.8 per cent to 1.9 per cent.
Insurance Australia posted only muted gains of 0.7 per cent to $3.05 after it announced it secured $4.7 billion of reinsurance this year, up from $4.1 billion last year.
Frequently Asked Questions about this Article…
Why did the Australian share market rise to a three-week high?
Local shares rose for a second day after upbeat global economic data — stronger-than-expected US manufacturing and construction, better Chinese manufacturing numbers and a fall in German unemployment — pushed investor sentiment higher and helped the S&P/ASX 200 hit a three-week high.
How much did the ASX indices gain and what were the closing levels?
The S&P/ASX 200 climbed 86.6 points (2.1%) to 4,187.8, while the All Ordinaries rose 84.3 points (2.0%) to 4,239.5, marking the highest levels since December 14 according to the report.
Which sectors led the gains and why did miners perform well?
Miners led the market higher, up about 3% overall, as metals prices climbed overnight — BHP Billiton jumped 4.1% to $36.22 and Rio Tinto rose 2.9% to $63.15, both closing at three-week highs.
Why did energy stocks like Santos and Woodside rise?
Energy stocks climbed after US oil prices rose to their highest level since May amid worries about a potential supply disruption from Iran, lifting Santos by 2.5% to $12.65 and Woodside by 2.3% to $31.40.
What happened with smaller miners and explorers such as Bandanna Energy?
Bandanna Energy gained 1.6% after saying it is pursuing discussions with third parties to secure funding to develop its Bowen Basin coal projects — a move investors often watch closely for project development and financing risk.
How did the financial sector and big banks fare amid European debt concerns?
The financial sector gained about 1.8% overall despite investor worries about the imminent rollover of roughly $120 billion of European debt; the big four banks added between 0.8% and 1.9% during the session.
What did analysts say about the market’s outlook and remaining risks?
Analysts like IG Markets’ Chris Weston noted traders appear optimistic entering 2012 and that short covering is supporting the rally, but cautioned risks remain real; City Index’s Peter Esho warned sharp gains may not be sustained as negative earnings news could still emerge.
How did Insurance Australia respond to its reinsurance update and what does that mean for investors?
Insurance Australia posted a modest gain of 0.7% to $3.05 after announcing it secured $4.7 billion of reinsurance this year, up from $4.1 billion last year — a development investors may view as strengthening the company’s risk management and capital position.
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