US Fed speculation pushes market down

The sharemarket lost ground this week, largely on speculation that the US Federal Reserve would start winding back its multibillion dollar stimulus program in September, rather than in December.

It was also weakened a little by the Reserve Bank's decision on Tuesday to cut the official cash rate to historic lows. The dollar rebounded from its recent low, closing the week around US91.4¢.

For the week, the S&P/ASX 200 Index fell 61.6 points, or 1.2 per cent, to 5055.2 points, while the broader All Ordinaries fell 59.9 points, or 1.2 per cent, to 5038.8.

Economic data and central banks dominated news this week.

Speculation that the US Fed would begin winding back its stimulus program earlier than expected peaked on Wednesday when the S&P/ASX 200 Index dropped 1.9 per cent, its biggest one-day fall since July 3, and Japan's Nikkei plunged 4 per cent.

The market never recovered from the blow. Market watchers questioned the intensity of the speculation - because who cares if the Fed starts "tapering" a few months earlier? - but it was too late.

The market lost $27.2 billion in one day. It was the deepest one-day rout in almost six weeks.

It came a day after the ASX shed 0.1 per cent following the Reserve Bank's decision to cut Australia's cash rate to 2.5 per cent and helped to snuff out a potential three-week rally. Anyway, the Reserve Bank cut another 0.25 percentage points off the cash rate, and its economic outlook that accompanied its rate decision was noticeably subdued.

Politicians offered their best explanations for the RBA's rate cut.

The federal government and Coalition spent the rest of the week trying to convince voters why the move was a sign that the economy was in fine or dire health.

Commonwealth Bank economist Michael Workman said the Reserve still appeared to be biased towards further monetary policy easing.

"The RBA's qualitative assessment of the outlook involves the economy running below trend until mid 2014, unemployment edging higher for a year or so and the inflation rate remaining in the bottom half of the target range," he said. "[But] the policy decision over the remainder of 2013 will remain data dependent.

"We will stick with our 2.5 per cent cash-rate call but will watch labour market trends and the Aussie dollar very closely in assessing the case for any further cut."

For the week, Rio Tinto rose 94¢, at $60.25. It returned to profitability in the first half of 2013 but it had to sack thousands of workers and slash $US1.5 billion in costs to get there.

Telstra rose 2¢, at $5.08 after reporting a 12.9 per cent rise in full-year net profit to $3.9 billion, with revenue up 2 per cent to $26 billion.

Cochlear shed 28¢, at $58.32, as the hearing implant maker said the success of the rollout of its Nucleus 6 device would be important for the company's financial results in the 2014 financial year. With AAP