Confidence boost for shares
Australian shares rose to a nine-month closing high after the Reserve Bank cut interest rates by a bigger-than-expected half a point and left the door open for further easing.
The benchmark S&P/ASX200 index rose 32.9 points, or 0.7 per cent, to 4429.5, while the broader All Ords gained 30.5 points, or 0.7 per cent, to 4497.7.
Among the sectors, energy jumped 1.4 per cent, consumer staples gained 1.2 per cent, financials added 0.7 per cent and materials 0.5 per cent.
Super-sized rate cut
The RBA had been widely expected to cut rates by 25 basis points, but instead cut them by 50 basis points to 3.75 per cent, aiming to get mortgage rates down to stimulative levels.
"Not only will the super-sized rate cut provide real stimulus, but it will also boost much-needed confidence," said Craig James, chief economist at broker CommSec.
Lower rates were expected to help retailers, home builders and building materials makers and also drive up demand for high dividend-yielding stocks, such as Telstra Corp, as investors face lower deposit rates.
Shares in big retailers, which have struggled with weak consumer spending over the past two to three years, jumped after the rate cut, with top department store chain Myer rising 3 per cent, David Jones up 2 per cent and top grocer Woolworths up 0.9 per cent.
Building materials maker Boral popped up 3.4 per cent and cement maker Adelaide Brighton rose 2 per cent.
However, analysts and investors warned the rate cut relief may only buoy the market in the short term.
"In the end what is going to significantly drive it from here has to be an improving economy and higher company earnings," said Steven Robinson, senior investment manager at Alleron Investment Management.
"And with what's happening at the moment it's difficult to see that occurring across the market at the moment.
Woodside rallies on stake sale
Woodside Petroleum was one of the best performers after the company sealed a $2 billion deal to sell part of its stake in the proposed Browse LNG development in Western Australia to a joint venture between Japan’s Mitsubishi Corporation and Mitsui. Woodside shares were up $1.28 at $36.20.
Among other energy stocks, Santos was up one cent at $14.03 and Oil Search added eight cents to $7.43.
The major commodity stocks were mixed, with BHP Billiton up 42 cents at $35.97 and Rio Tinto was down 56 cents at $65.79.
Commonwealth Bank was the best performer of the big four banks, up 88 cents at $52.85.Westpac was 10 cents higher at $22.83, ANZ was up eight cents at $23.99, but National Australia Bank was down two cents at $25.21.
Other market movers
Among other market movers, coal seam gas explorer Senex Energy slid 5.3 per cent to $1.075 after British energy firm BG Group sold its 8 per cent stake in Senex off market to institutional investors for $75 million, or $1.02 a share.
Alesco jumped 43 per cent after receiving a $188 million takeover offer from paint maker DuluxGroup. The garage door maker's shares closed at $2.00, in line with Dulux's offer. Dulux already owns nearly 20 per cent of the stock.
Gold miner Ramelius lost a quarter of its value, closing at 58 cents after saying it had failed to extend the ore body at its main mine, Wattle Dam, which meant mining was likely to end there in the first half of 2013.
Online travel group Wotif slid 5.7 per cent to close at $4.17 after warning its profit this year would be up to 5 per cent below analysts' consensus forecast, in the latest profit warning from a retailer.
CMC Markets sales trader Ben Taylor said the market could not sustain the momentum of the rally after the rate cut.
'‘Initially it was very positive, we rallied close to 30 points following the 50 basis point cut but subsequently we’ve fallen back to levels closer to where we were when the announcement was made,’’ Mr Taylor said. ‘‘To some extent, there was a factor already based in for a 50 basis point cut.
News that China’s manufacturing activity expanded buoyed the market in earlier trading after a preliminary reading of the same data last month had suggested a contraction.
BusinessDay with agencies