Shares lift in wake of US pull-back

The Australian sharemarket is likely to start the week on a positive note as economists predict a delay to serious stimulus spending cuts in the world's biggest economy.

Local stocks fell from five-year highs on Friday as investors prepared for the US Federal Reserve to start winding back its stimulus program at an Open Market Committee on Wednesday.

But weak US retail sales figures released late on Friday have made it harder for the Reserve to justify cuts. According to Bloomberg economists, the Reserve will begin tapering its $85 billion monthly bond purchases this week, but only by about $10 billion.

"It is becoming increasingly difficult for the Federal Reserve to justify reducing stimulus next week," Kathy Lien, managing director of FX strategy for BK Asset Management said.

"A slowdown in consumer spending, decline in confidence and sluggish job growth screams of a recovery that is losing momentum. Inflationary pressures are virtually non-existent which means that if the central bank were to consider a policy action, arguments could be made easing and tightening.

Retail sales growth in the US slowed to 0.2 per cent from 0.4 per cent in the month of August, a report showed.

Local investors will also be looking to Tuesday's release of the Reserve Bank's monthly board meeting minutes for any indication on interest rate movement.

On Friday, ANZ economists released an improved outlook for iron ore over the next two years.

The upward price revisions are short term and reflect stronger than expected demand for steel in China so far this year. "Our recent marketing trip to China confirmed a more buoyant steel story," Mark Pervan, global head of commodity strategy, said in a note.