Stocks rebound as EU confidence grows

THE market rose more than 3 per cent yesterday, led by the banks and miners that brought it down on Monday.

By InvestSMART · 28 Sep 2011

By InvestSMART ·
28 Sep 2011

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THE market rose more than 3 per cent yesterday, led by the banks and miners that brought it down on Monday.

Stocks rebounded from their two-year low at the open after European and US markets rallied on speculation European leaders would employ fresh measures to counter the Greek debt crisis and avert a global recession.

To the surprise of sceptics, the market extended the gains to the close, which CityIndex chief analyst Peter Esho said was a "strong signal" the market had bottomed from last week's severe losses.

By the close, the benchmark S&P/ASX 200 Index had gained 140.7 points, or 3.6 per cent, to 4004.6.

CMC Markets trader Ben Taylor said investors were confident a resolution of the European debt crisis was drawing near, before a German vote.

Media reports suggested European Union policymakers had plans to use the EU rescue fund to recapitalise vulnerable euro-zone banks.

"The proposed asset relief idea should give euro banks the chance to discard some of their bad investments and raise capital to suitable levels," he said.

Mr Taylor said he expected investors to push money back into the markets over the next fortnight.

Materials, which closed 3.9 per cent lower on Monday, were the strongest performing stocks, with the sector rising 4.95 per cent.

Rio Tinto gained $3.22, or 5.4 per cent, to $63.42 after it bought several iron ore deposits in the central Pilbara for $32 million, while BHP Billiton rose $1.40, or 4.1 per cent, to $35.35.

Mr Esho said materials stocks looked to be bottoming as silver and gold prices bounced back from last week's lows.

Newcrest Mining, which was the worst performer among the top 50 companies on Monday, rose $1.56, or 4.8 per cent, to $34.42.

Gold closed in Sydney at $US1650.72 an ounce, up $US83.90 from Monday.

The local financial sector gained 4.3 per cent, with all the big retail banks ending the day more than 5 per cent higher, except Commonwealth Bank, which closed up 3.9 per cent at $45.55. Westpac gained $1.06, or 5.5 per cent, to $20.25 after cutting the interest rates on several fixed-rate home loans, as expectations of a Reserve Bank rate rise weakened.

Rare-earths minerals explorer Lynas Corporation was the strongest stock of the ASX's top 100, soaring 34.9 per cent to $1.18. Building materials company CSR was the worst-performing stock among the top 100, shedding 1.3 per cent to $2.29.

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Frequently Asked Questions about this Article…

What drove the stocks rebound on the ASX and how did the S&P/ASX 200 perform?

Australian shares rallied after European and US markets jumped on speculation European leaders would use fresh measures to address the Greek debt crisis. The S&P/ASX 200 climbed 140.7 points, or 3.6%, to 4004.6 as banks and miners led the gains.

Which sectors led the market rally and how did financial and materials stocks fare?

Banks and miners were the market leaders. The materials sector rose about 4.95%, while the local financial sector gained roughly 4.3%. Most big retail banks were more than 5% higher, with Commonwealth Bank up 3.9% at $45.55.

How did European policy headlines influence Australian market sentiment?

Media reports suggested EU policymakers planned to use the EU rescue fund to recapitalise vulnerable euro‑zone banks, and the proposed asset relief idea could let banks discard bad investments and raise capital. Traders said that speculation boosted investor confidence that a resolution to the European debt crisis was drawing near, lifting markets.

What happened to major miners like Rio Tinto, BHP Billiton and Newcrest during the rebound?

Rio Tinto gained $3.22 (5.4%) to $63.42 after buying several iron‑ore deposits in the central Pilbara for $32 million. BHP Billiton rose $1.40 (4.1%) to $35.35. Newcrest Mining, which had been a recent weak performer, rose $1.56 (4.8%) to $34.42.

How did gold and other materials-related prices move, and what did analysts say about materials stocks?

Gold in Sydney closed at US$1,650.72 an ounce, up US$83.90 from the prior session. Materials stocks bounced—analysts noted silver and gold had recovered from recent lows and suggested materials stocks looked to be bottoming.

Why did Westpac shares rise and what did its move on fixed‑rate home loans indicate?

Westpac gained $1.06 (5.5%) to $20.25 after cutting interest rates on several fixed‑rate home loans. The move came as market expectations of a Reserve Bank rate rise weakened, which investors interpreted positively for bank margins and mortgage demand.

Which ASX top‑100 stocks showed extreme moves and what were those moves?

Rare‑earths explorer Lynas Corporation was the strongest ASX top‑100 stock, soaring 34.9% to $1.18. Building materials company CSR was the weakest among the top 100, falling 1.3% to $2.29.

Are analysts saying the market has bottomed and what are short‑term expectations for investors?

CityIndex chief analyst Peter Esho said the extended gains into the close were a 'strong signal' the market had bottomed after recent severe losses. CMC Markets trader Ben Taylor expected investors to push money back into the markets over the next fortnight as confidence in a European resolution grows ahead of a German vote.