Stocks advance despite US debt crisis

THE sharemarket moved up strongly yesterday despite US leaders failing to agree on a strategy to repay the country's debts.

THE sharemarket moved up strongly yesterday despite US leaders failing to agree on a strategy to repay the country's debts.

US President Barack Obama has warned of dire economic consequences if Democrat and Republican leaders cannot reach an agreement to raise the country's debt ceiling by August 2.

The benchmark S&P/ASX 200 Index closed up

42.9 points, or 0.95 per cent, at 4573.3.

IG Markets institutional dealer Chris Weston said impressive results from the US corporate reporting season had helped "prop up" the Australian market.

He said mild demand for gold, which usually increases sharply during economic crises, indicated investors believed the US economy would improve. "What we've seen is people hedging some of their portfolios into gold," Mr Weston said.

President Obama said the US was growing dangerously close to default, but appeared no closer to reaching a compromise with Republicans in Congress. He warned of job cuts and "serious damage to the economy" unless the crisis was resolved.

"For the first time in history our country's AAA credit rating would be downgraded, leaving investors around the world to wonder whether the United States is still a good bet," Mr Obama said. "We would risk sparking a deep economic crisis this one caused almost entirely by Washington."

He said a US default on its payments would be "reckless and irresponsible".

Wall Street's Dow Jones dropped 0.7 per cent and the broader S&P 500 Index slipped 0.56 per cent on Monday night. But the Australian market bounced back, recovering more than half Monday's losses.

The financial index was among the best performers, moving up 1.2 per cent. The big four banks all made gains, ANZ rising 24? to $21.55, NAB 19? to $24.82, Westpac 10? to $21.36 and Commonwealth 68? to $50.22.

The materials sector moved up 1.1 per cent. BHP Billiton gained 46? to $43.52, while Rio Tinto advanced 93? to $82.99.

The consumer discretionary sector lost ground, with Wesfarmers losing 20? to $30.22 and Woolworths dipping 2? to $27.40.

The price of gold slipped $US3.56 to $US1614 an ounce. Goldminer Newcrest dropped 17? to $40.18.

HSBC's global banking and markets head of sales, Ian Collins, said the Australian dollar rallied "hard" after Mr Obama's speech, pushing past $US1.09 just before 1pm, its highest since May 3. With AAP

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