Australian shares jumped in a rally led by the big banks as the falling dollar sparked a rush of foreign buying, with investors shrugging off sliding commodity prices and the release of some disappointing domestic retail spending statistics.
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The benchmark S&P/ASX 200 Index jumped 0.8 per cent, on Wednesday to 5334.1 points, while the broader All Ordinaries Index added 0.7 per cent to 5334.5 points, as foreign inflows into the biggest bank stocks fuelled a rally for the second day in a row.
Local shares recovered from falling sharply in the morning after taking a weak lead from offshore after Wall Street declined and major European markets dropped following a disappointing inflation reading.
It was a positive start to October trading for the ASX 200 after it lost 5.9 per cent in September, wiping out all of the gains investors had clawed over the first eight months of the year.
Australian Bureau of Statistics data released on Wednesday showed retail sales dipped 0.1 per cent in August, missing expectations for a 0.4 per cent rise.
Rather than domestic traders, it has been international buyers driving a rally in Australian shares over the past two sessions, Arnhem Investment Management head trader Simon Twiss said.
"Finally some of the big institutional investors from the United States seem to be returning to the local market, particularly snapping up high-yielding stocks such as the big four banks and Telstra Corporation," Mr Twiss said.
"When you consider the heavy sell-off over the past month, combined with the impact of the significant depreciation in the Australian dollar , the local sharemarket is off about 12 per cent from its 2014 peak at the start of September," Mr Twiss said.
The Australian dollar, which has lost more than 7 per in the last month, dropped below US87¢ on Wednesday for the first time since January, following the release of the disappointing consumer spending statistics.
But the biggest retail stocks were stronger. Woolworths rose 1.4 per cent to $34.73, while Wesfarmers, owner of Coles, added 0.4 per cent to $42.33 as it launched a $870 million eurobond.
The overall strength of the sharemarket was driven by gains in the big four banks and Telstra Corporation.
Commonwealth Bank added 1.2 per cent to $76.20, while Westpac gained 1 per cent to $32.46. ANZ lifted 1.7 per cent to $31.43, and National Australia Bank rose 0.9 per cent to $32.83.
Telecommunications giant Telstra jumped 1.5 per cent to $5.38.
Resources giant BHP Billiton rose 0.4 per cent to $33.99, while main rival Rio Tinto dipped 0.5 per cent to $59.26.
Smaller resources stocks were generally weaker amid softer gold, crude oil, and iron ore prices. The spot price for iron ore, landed in China, slipped 0.3 per cent to a new low of $US77.50 a tonne. In China the official manufacturing purchasing managers index for September remained flat at 51.1 points, indicating continued soft demand.
Oil Search lost 0.5 per cent to $8.88 after crude oil prices slumped to two-year lows.
Offshore oil and gas services company Mermaid Marine was the best-performing stock in the ASX 200, climbing 8.8 per cent to $2.10, after Deutsche Bank upgraded it to a "buy". "Weak sentiment has created a buying opportunity," Deutsche Bank analyst Wassim Kisirwani said. He noted a recent acquisition has diversified Mermaid's earnings, geographically and in terms of its business activities.
