Miners are leading the sharemarket's rally.
The Australian sharemarket has kicked off the new year with strong gains, hitting a 19-month high as a last-minute deal ended the US "fiscal cliff" crisis that threatened a recession and roiled world financial markets.
At the close, the benchmark S&P/ASX200 index was up 57 points, or 1.2 per cent, at 4705.9, posting its strongest start to a year since 2001. The broader All Ordinaries index rose 58.3 points, or 1.2 per cent, to 4722.9.
Among the major sectors, materials were up 2.3 per cent, energy stocks gained 1.2 per cent and financials rose 0.8 per cent.
The US Congress approved a rare tax increase today that will hit the nation's wealthiest households in a bipartisan budget deal that stops the world's largest economy from falling into recession.
The US Senate had passed a bill that aims to avoid the cliff's automatic implementation of $US600 billion in spending cuts and tax increases. The House of Representatives approved the bill this afternoon
The bill's passage in Congress allayed earlier concerns over complaints from a number of Republicans that spending cuts were still not adequately addressed.
The US budget deal sliced the fiscal drag on the US to about $US250 billion from a possible $US670 billion, avoiding economic recession.
"This is great news for global growth and explains why shares and other growth-related assets such as the Australian dollar are up strongly today," said Shane Oliver, strategist at AMP Capital.
AMP forecast US growth of 2.5 per cent in 2013 and global growth of around 3.25 per cent, underpinning gains in global share markets.
"This removal of the fiscal cliff threat provides a positive backdrop for Australia," Mr Oliver said, predicting Australian shares could return around 12 per cent this year.
Institutional dealer Anson Rosewall from BBY Limited said the Australian sharemarket posted a "relief rally" following the resolution of the "fiscal cliff" in a deal that raised taxes on the rich and put off automatic $109 billion budget cuts for two months. But he said the low volumes were a cause for concern.
"What is of concern however is that volumes are very thin and that is typical for this time of year, but even then, they are unusually thin, and when volumes are thin, it tends to leave the market open to quick and exaggerated moves," Mr Rosewall said.
"When US stocks open, should Wall Street not rally, it could mean the market could give back all these gains tomorrow and quite drastically if there’s not much liquidity.
"But on the whole, it’s a good start to the new year and things are getting better in terms of China’s growth picture, which is seeing money going into materials, and that’s pretty evident today with some of the major miners up. There’s still ongoing demands for yields, so that includes the banks and Telstra."
Iron ore price jumps
Investors also bought riskier assets as the iron ore price rose about 4 per cent to $US144.90.
‘‘Iron ore is having a good run at the moment based on the increase in the iron ore price, but also on the expectation that it would stay up for the foreseeable future,’’ RBS Morgans Private client adviser Bruce Smith said.
Iron ore focused miners such as Rio Tinto, Atlas Iron and Fortescue Metals Group were all performing strongly. BHP Billiton rallied 2 per cent to $37.84 while Rio Tinto gained 2.4 per cent to $67.62 and Fortescue jumped 6 per cent to $4.92 after iron ore prices posted the biggest monthly increase on record in December.
Gindalbie Metals soared 10 per cent to 27.5 cents after it shipped the first shipment of magnetite concentrate to China from the Karara iron ore project.
Among other major stocks, Telstra jumped 7 cents, or 1.6 per cent, to $4.44.
A contraction in manufacturing activity, as well as a surprise fall in home prices in December, both reflected in data released this morning, did not appear to weigh on the market.
Dollar on the rise
The Australian dollar scaled four-year peaks against the yen and leaped on its US counterpart after the last-minute approval of the US fiscal deal.
The Aussie surged to $US1.0495, up nearly two cents from late trading in New York on Monday and approaching a three-month peak of $US1.0585 hit last month. It last fetched $US1.0475.
"The deal was certainly welcomed by the Aussie, euro and equities. European and US markets should follow it through positively," said Sean Callow, a senior currency strategist at Westpac, seeing scope for the Aussie to potentially pop over $US1.0500.
The dollar made even bigger strides against a floundering yen, climbing to levels not seen since September 2008.
The Aussie jumped as far as 91.97 yen, up more than 1 per cent on the day with daily moving averages pointing north.
BusinessDay, with wires