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Sharemarket Opened Week with a Solid Gain on Signs of Recovery in The US Economy

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Core prompt: The sharemarket opened the week with a solid gain yesterday on signs of recovery in the US economy ahead of Federal Reserve

The sharemarket opened the week with a solid gain yesterday on signs of recovery in the US economy ahead of Federal Reserve chairman Ben Bernanke's monetary policy testimony on Wednesday (US time) before the joint economic committee of congress.

Mr Bernanke could spark a sell-off or further gains in risk assets, including commodities and Australian equities, depending on how he casts his stance on the US economy and the Fed's aggressive monetary stimulus, known as quantitative easing.

Speeches from other Fed officials were also in focus, with Chicago Federal Reserve president Charles Evans due to speak overnight.

Locally, the benchmark S&P/ASX 200 index closed up 0.5 per cent at 5209.04 points after spiking to 5246.9, just shy of the five-year peak of 5249.6, struck last Wednesday. In a healthy sign for the market, cyclical stocks in the material and financial sectors led gains, while defensive sectors including healthcare, consumer staples and property trusts underperformed the broader market.

"The theme which has been driving the market higher -- investors looking for dividend-paying stocks -- has continued," RBS Morgans private client adviser Craig Walker said. "Strong US consumer confidence figures have been the main driver."

Banking stocks were mixed, with ANZ down 3c at $30.23, Commonwealth Bank 28c higher at $73.49, National Australia Bank 28c stronger at $33.37 and Westpac up 44c at $31.79.

Resources stocks were mixed as the gold price continued to wane, with BHP Billion 38c higher at $34.79 and Rio Tinto up 13c to $55.42. Goldminer Newcrest was down 12c at $14.56.

Meanwhile, Santos closed 21c higher at $13.14 after the company said oil production had begun ahead of schedule at its $490 million Fletcher Finucane project in Western Australia.

Construction giant Leighton Holdings reaffirmed earnings guidance for 2013, with underlying net profit forecast at between $520m and $600m.

Leighton was up 66c, or 3.66 per cent, at $18.67.

Australia's second-largest telco, Optus, said it would expand its latest 4G mobile network to 70 per cent of the country's metropolitan population by the middle of next year. Its parent company, Singapore Telecommunications, was up 2c at $3.30 in local trading. The company is listed in both Australia and Singapore.

In the consumer discretionary sector, Myer rose 3 per cent after Citi upgraded the stock to neutral from sell. "It's fair to say all those people who want to be short in the market have already sold," said CMC chief market strategist and editor of the Market Mint newsletter, Michael McCarthy.

"That leaves the market vulnerable to a 'melt-up'."

Australia's dividend yields and economic outlook remained supportive for shares, he said. However, working against the market were continued falls in commodity prices, particularly gold and iron ore, a jump in bond yields, and a rapidly falling dollar.

"I would suspect that offshore selling would be a risk given the fall in the Aussie dollar," said BBY institutional dealer Anson Rosewall. "Indeed, there is growing evidence that US investors are repatriating funds back to North America (bar Japan) as expectations build that the US dollar and US equities will lead the way for the rest of the year."

 
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