Stocks up strongly on hopes for euro plan

THE sharemarket gained about $35 billion in value yesterday as buyers returned amid hopes of a comprehensive fiscal stability plan for Europe.

By InvestSMART · 25 Oct 2011

By InvestSMART ·
25 Oct 2011

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THE sharemarket gained about $35 billion in value yesterday as buyers returned amid hopes of a comprehensive fiscal stability plan for Europe.

The S&P/ASX 200 Index climbed 113.1 points, or

2.73 per cent, to 4255 more than winning back the 63.7 points lost last week.

Global markets surged on optimism that a meeting of European leaders this week would thrash out a plan for the euro zone's economic woes. Yesterday's Australian market performance was roughly in line with Friday night's gains on Wall Street, which also was responding to some strong earnings reports.

EU leaders on Sunday agreed to plans to increase the firepower of the euro-zone rescue fund the European Financial Stability Facility and backed plans to recapitalise banks that would be hit by a massive write-down of Greek debt.

They also pressed Italy to slash its debt mountain, and ruled out tapping the European Central Bank's balance sheet to contribute to the rescue fund.

CommSec market analyst Juliette Saly said gains were across the board but strong Chinese manufacturing data added momentum to mining stocks, as did comments from Rio Tinto chief executive Tom Albanese that long-term demand for commodities remained strong.

Rio advanced $3.06, or

4.9 per cent, to $65.63, BHP Billiton closed up $1.15, or 3.2 per cent, at $36.85 and Fortescue Metals jumped 36?, or 8.5 per cent, to $4.61.

Caltex was also a strong performer, up 77?, or 5.8 per cent, at $13.98.

Drug developer Pharmaxis, which is a step closer to marketing a new treatment for cystic fibrosis in Europe, soared 47?, or

50 per cent, to $1.41.

In the energy sector, Woodside Petroleum put on $1.21, or 3.6 per cent, to $34.59 and Santos was 42?, or 3.47 per cent, higher at $12.54.

The big four banks were all more than 2 per cent stronger. ANZ climbed 50? to $21.71, NAB 62? to $24.94, Commonwealth $1.23 to $48.78 and Westpac 66? to $22.16.

Shares in Origin Energy rose 54?, or 3.8 per cent, to $14.59 after the company reaffirmed its forecast of a

30 per cent rise in underlying profit this financial year and again defended its coal seam gas operations.

The indications of a euro-zone rescue gave gold a fillip. At the Australian close, it was up $US24.37 an ounce at $US1653.55.

The dollar hit a six-week high, buoyed by encouraging Chinese manufacturing data. At the 5pm cutoff, it was at $US1.0416, up more than US1.5? from Friday's close.

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Frequently Asked Questions about this Article…

What caused the strong one-day gain in the Australian sharemarket?

The market gained about $35 billion as optimism grew that European leaders would agree a comprehensive euro-zone fiscal stability plan. Global gains on Wall Street, encouraging Chinese manufacturing data and some strong corporate earnings also helped push the S&P/ASX 200 up 113.1 points (2.73%) to 4,255.

Why did mining stocks rally and which miners led the gains?

Mining stocks were boosted by stronger-than-expected Chinese manufacturing data and comments from Rio Tinto's CEO about long-term commodity demand. Rio Tinto rose about $3.06 (4.9%) to $65.63, BHP Billiton added $1.15 (3.2%) to $36.85, and Fortescue Metals jumped about 8.5% to $4.61.

How did energy and resources companies perform and what drove their moves?

Energy stocks responded to the broader market lift and sector fundamentals. Woodside Petroleum put on $1.21 (3.6%) to $34.59 and Santos rose about 3.47% to $12.54. Origin Energy jumped about 3.8% to $14.59 after reaffirming its forecast of a 30% rise in underlying profit and defending its coal seam gas operations.

What happened to bank shares during the rally?

The big four Australian banks were all stronger, rising by more than 2% as investor sentiment improved. At the close ANZ was at $21.71, NAB at $24.94, Commonwealth Bank at $48.78 and Westpac at $22.16.

Why did Pharmaxis shares soar and what does it mean for investors?

Pharmaxis surged roughly 50% to $1.41 after moving a step closer to marketing a new treatment for cystic fibrosis in Europe. For investors this highlights how regulatory progress and near-term commercial milestones can produce large share-price moves in biotech stocks.

Did the euro-zone developments affect commodity prices like gold?

Yes. Indications of a euro-zone rescue plan gave gold a boost — at the Australian close gold was up US$24.37 an ounce at US$1,653.55, reflecting demand for safe-haven assets amid policy discussions in Europe.

How did the Australian dollar react to the news and why does it matter?

The Australian dollar hit a six-week high, trading at US$1.0416, helped by encouraging Chinese manufacturing data. Currency moves matter for investors because they affect the local-currency value of commodity prices, export earnings and multinational earnings reported in Australia.

What should everyday investors take away from this market update?

Short-term market moves were driven by geopolitical policy hopes (a euro-zone plan), global economic data (China) and company-specific news (earnings, regulatory progress). Everyday investors should focus on company fundamentals, sector exposure (mining, energy, banks, biotech), and maintain diversification rather than overreacting to one-day rallies or falls.