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The benchmark S&P/ASX 200 closed up 12.3 points, or 0.3%, at 4700.3 after falling to 4670.5 from an early high of 4709.5.
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Date Posted: 16/11/10 13:21:22
SYDNEY (Dow Jones)--The Australian share market recovered from a two-week low Tuesday as recent risk aversion began to fade, amid speculation that Ireland was close to accepting a financial bailout from the European Union.
Financials led the recovery, with Commonwealth Bank of Australia outperforming after Goldman Sachs upgraded its rating to Buy.
The benchmark S&P/ASX 200 closed up 12.3 points, or 0.3%, at 4700.3 after falling to 4670.5 from an early high of 4709.5.
The index was trading early Tuesday below the level prevailing before the U.S. Federal Reserve's Nov. 3 quantitative easing announcement, which preceded a rise to a six-month high of 4815.0 as Wall Street rallied.
With Irish bond yields falling for the past two days and the euro recovering above US$1.3640 in Asia after hitting a seven-week low of US$1.3562, traders were betting Ireland will soon accept an EU bailout, with positive implications for global equities.
While equities have recently been hampered by risk aversion caused by European sovereign debt worries, traders expected such concerns to dissipate if Ireland accepts a bailout.
"There are growing expectations that we will see the EU bail out Ireland this week," said RBS Morgans investment adviser Chris MacDonald "The last thing Europe needs is negative sentiment. A bailout of Ireland should see a revaluation of the euro versus the U.S. dollar and that should see a mild return to risk plays, including equities, commodities and the Australian dollar."
The Aussie bounced above US$0.9880 in Asia after hitting a two-week low of US$0.9820.
"Too many are short equities and long cash and with the specter of year-end looming in the background, many will want to be increasing equity holdings," said Goldman Sachs traders.
Institutional investors will be forced to digest the QR National institutional bookbuild this Thursday/Friday, but analysts are on the look out for catalysts--such as increased takeover activity--that could trigger a 'Santa Claus' rally.
"It's common knowledge that markets usually put in a pretty good performance heading into Christmas," said IG Markets strategist, Ben Potter. "At the moment, it feels like the market is trying to 'time its run' to perfection. No one wants to move too early, although we get the feeling that when the market does, it'll be a stampede to get long."
However, some traders sensed the market was vulnerable in the short term.
"When 4700 broke, the market should have run a lot harder than it did," said an adviser with Macquarie Private Wealth. "The fact that we're back here is pretty negative. You pick downside targets on the market right now and people get angry; they don't want to hear it."
The trader, who declined to be named, expected a test of the 200-day moving average line near 4610, adding that a fall to 4535 was possible.
Commonwealth Bank rose 2.1% to A$49.89 after Goldman Sachs upgraded to Buy, saying CBA's recovery in pre-provision earnings remains on track, lower bad debts could provide further upside to earnings, and CBA's valuation remained undemanding.
ANZ closed up 0.6% at A$23.22 after hitting A$23.68 after the Wall Street Journal said Lone Star Funds agreed to sell its 51% stake in Korea Exchange Bank (004940.SE) to Hana Financial Group, rather than ANZ.
Traders initially bought ANZ on the view that there was no longer any risk of it overpaying for KEB or launching a capital raising. But the strength faded after ANZ said it's continuing due diligence on KEB.
Energy and materials stocks mostly weakened with Rio Tinto, Newcrest, Woodside and Santos down 0.6%-1.3% on the back of U.S. peer weakness.
However, BHP rose 0.7% to A$44.45 after Goldman Sachs and Southern Cross Equities reiterated their buy recommendations on the stock following BHP's decision to drop its bid for Potash Corp. of Saskatchewan in favor of share buybacks.
Industrials lost ground, with Qantas down 2.2% to A$2.73, Leighton down 0.8% to A$32.25 and Brambles down 1.3% to A$6.79.
-By David Rogers, Dow Jones Newswires: 61-2-8272-4693: david.rogers1@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=idyW2QHED3i5%2FELJokPqvA%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
November 16, 2010 01:39 ET (06:39 GMT)
Copyright (c) 2010 Dow Jones & Company, Inc.
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