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Market Wrap: Aus shares higher, rates on hold

Aus shares higher, rates on hold. Downer EDI Limited (ASX:DOW) secures a contract on the Chevron operated Gorgon Project off the north-west coast of WA.

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The local sharemarket has hit a fresh six-year high as confirmation of continuing low interest rates domestically and the promise of increased monetary policy support in Europe lifted investors spirits.

The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each added 0.5 per cent, on Tuesday to 5658.5 points and 5656.8 points respectively. Telstra Corporation led the bourse up 1.4 per cent at $5.66

Local shares had little direction at the open after equity markets in the United States were closed for the Labor Day holiday on Monday. In Europe investors are idling ahead of the highly anticipated European Central Bank meeting on Thursday. Many economists are tipping the ECB will introduce quantitative easing style stimulus.

"There could be instability in the month ahead if the ECB does a complete about-face on austerity policy while risks are high in Ukraine," Prime Value Asset Management chief investment officer Han K Lee said.

Some strategists have predicted the ECB will announce €1.4 trillion worth of stimulus on Thursday, which will more than make up for the expected end of extraordinary stimulus in the United States next month, he said.

"The Bank of Japan is likely to do something similar in the coming months, meaning global equity markets are set to be supported as the market is flooded with money," Mr Lee said.

"Printing money is an unsustainable solution and on a fundamental basis it looks like a bubble is building in equity markets, but it is very difficult to predict the timing of these events," Mr Lee said.

As was expected, the September policy meeting of the Reserve Bank of Australia elected to hold the official cash rate at its record low 2.5 per cent, for the 13th meeting in a row.

The accompanying statement from RBA governor Glenn Stevens highlighted concerns about "spare capacity" in the labour market and declining wages growth. The statement made no change from previous months in concluding with the view that, "the most proudent course is likely to be a period of stability in interest rates".

Mr Lee is tipping the RBA will keep the cash rate on hold until mid 2015, only raising it after the US Federal Reserve has started lifting its rates.

Earlier in the session, Australian Bureau of Statistics data showed building approvals rose 2.5 per cent in July, more than the predicted 1.9 per cent gain and up from a 3.8 per cent drop in June. Meanwhile, a separate report from the ABS showed the current account hit a deficit of $13.7 billion in the second quarter, slightly better than expectations for a $14 billion deficit.

The big four banks were mixed. Commonwealth Bank of Australia gained 0.3 per cent to $81.50, while Westpac Banking Corporation edged up 0.1 per cent to $35.17. ANZ Banking Group added 0.5 per cent to $33.61, and National Australia Bank crept down 0.1 per cent to $35.09.

In food and liquor, Woolworths rose 0.6 per cent to $35.94, while Wesfarmers lifted 1 per cent to $43.73 as it announced plans to axe 600 head office jobs.

Qantas Airways lifted 5.2 per cent to $1.53. Analysts have been divided in their reactions since the airline posted a $2.8 billion net loss last week. CIMB analysts said it "is time to re-board", upgrading the stock to a "buy", while EVA Dimensions downgraded it to "underweight".

The spot price for iron ore, landed in China, was 0.9 per cent lower at a two-year low of $US87.10 a tonne. When the local market closed futures trading in China was tipping a lift in the spot price overnight. Resources giant BHP Billiton rose 0.5 per cent to $36.90, and main rival Rio Tinto gained 0.4 per cent to $63.03.

Energy was the best-performing sector, up 1.7 per cent, as a joint venture between Origin Energy and AWE Ltd announced a "significant" gas discovery in Western Australia. Shares in Origin Energy added 3.1 per cent to $16.12, while AWE jumped 3.5 per cent to $1.78.

The news came a day after Morgan Stanley analysts upgraded Origin to "overweight" while endorsing the company's strategy to focus on gas.

"The 'long' gas position has evolved into a major domestic and export business. In contrast, electricity is domestically constrained and faces challenging market dynamics," Morgan Stanley analyst Stuart Baker said.

Utilities was the worst-performing sector, down 0.9 per cent, as the country's biggest retail electricity and gas supplier traded ex-dividend. AGL Energy dropped 49¢ to $13.73 after trading without the rights to a 33¢ per share final dividend. It was one of a number of stocks that sold-down after going ex-dividend.

Packaging company Amcor shed 39¢ to $13.73 after trading without the rights to a 23.5¢ final dividend. Building materials supplier Boral lost 11¢ to $5.34 after trading without the rights to an 8¢ final dividend. Hearing implant maker Cochlear dropped 34¢ to $72.91 after trading without the rights to a $1.27 final dividend. Takeover target Treasury Wine Estates, owner of Penfolds and Lindemans, slipped 3¢ to $5.10 having traded without the rights to a 7¢ per share final dividend.

Gaming company Aristocrat Leisure lifted 1.3 per cent to $5.47 as it unveiled the sale of its lotteries business for €10.5 million.