Australian sharemarket posts remarkable recovery

The Australian sharemarket has posted a remarkable recovery today, reversing early losses to close 1% higher on investor hopes the US Federal Reserve will announce a third round of quantitative easing tonight.

At 4.15pm, the SS&P/ASX was up 1.22% to 4034.8 while the broader All Ordinaries index was up 0.99% to 4096.7. In early trade, it slumped 5% after one of the most dramatic nights in Wall Street since the GFC, with the S&P 500 index plunging 6.7% as investors responded to the Moody’s downgrade.

The local market started to turn around in the afternoon, and the gains were shared among the big four banks and the big miners, BHP Billiton and Rio Tinto. Telecommunications giant Telstra, however, remained lower at the close.

At 4.15 AEDT, the Australian dollar was buying $1.02 US cents, after dropping to a five-month low today on the back of higher-than-expected annual inflation figures in China.

The market’s lift follows a suite of new data, including a third consecutive decline in the National Australia Bank monthly business survey and weaker-than-expected housing finance figures. The Reserve Bank said it was watching market developments carefully, and Treasurer Wayne Swan cautioned against panic.

US President Barack Obama told the country last night that “no matter what some agency may say, we’ve always been and always will be a Triple-A country.”

“In fact, Warren Buffet – who knows a thing or two about good investments – said, ‘If there were a Quadruple-A rating, I’d give the United States that.'”