Market bounces back on Reserve optimism

The Australian sharemarket reversed early weakness after the Reserve Bank said lower interest rates and a weak Australian dollar would support growth.

The S&P/ASX 200 index fell 0.8 per cent in early trade as BHP Billiton tumbled 5 per cent on news of a disaster at a joint mine venture in Brazil. But the market bounced after the release of the Reserve’s quarterly statement and closed up 22 points, or 0.42 per cent, at 5215 as investors looked on the bright side of diminishing hopes for a December rate cut.

There was no reaction from the Australian dollar which was little changed at US71.45¢, while government 10-year yields were flat at 2.78 per cent.

US 10-years were steady at 2.24 per cent as global market attention switched to tonight’s US non-farm payroll report where a strong number, above the expected 185,000 increase could cement a December 17 rate rise.

Westpac strategists said in report the global monetary situation was “fluid” with odds increasing of the Fed tightening and the European Central Bank easing and there were numerous risks lurking before year end.

“As for the world economy, global trade volumes remain weak, national investment upswings are scarce, emerging market credit conditions are tightening and disinflationary forces in goods markets remain pronounced,” they said. “Against this unprepossessing backdrop commodity prices have begun to soften anew.”

Spot iron ore fell one per cent to a fresh four-month low of $US48.71 a tonne yesterday, while Dalian iron ore futures were down 0.7 per cent today.

the Shanghai composite index was up 0.5 per cent at the close of the ASX

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