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The Australian share market rallied in late trading to close in the black despite a weaker Wall Street close and lower base metals prices.
Local optimism over the US Federal Reserve's big interest rate cut, which on Wall Street was marred by rating agencies announcing a downgrading of bond insurers, and bargin hunting pushed the bourse higher.
After dipping three per cent in intraday trade, the benchmark S&P/ASX200 index was up 31.6 points, or 0.56 per cent, to 5,650.3 and the broader All Ordinaries had gained 31.7 points, or 0.56 per cent, to 5,697.
On the Sydney Futures Exchange at 1616 AEDT, the March share price index contract was up 35 points to 5,624 on 52,306 contracts.
CommSec market analyst Savanth Sebastian said concerns in the credit market about the US bond insurers overshadowed the positivity of the US interest rate cut.
"There are concerns that we will see bond insurers in the US get their ratings revised downwards, which causes an issue for them to be able to provide insurance to banks around the world - that's what has been driving our market lower," Mr Sebastian said.
"Considering the top two bond insurers are in the US, it certainly does pose a problem to market liquidity.
"In general, we are seeing a bit of risk aversion in the market.
"In particular, the Australian dollar has come down quite strongly and we're seeing a sell out of the Australian dollar and a move back into the Japanese yen.
"Most of the Asian markets are stronger and the reaction by our market to the bond insurer issues amounts to overselling.
"You could classify it as an overreaction."
He said local resources stocks suffered from lower base metals prices.
However, the big miners seemed unaffected. BHP Billiton closed 94 cents higher to $37.05 and takeover target Rio Tinto had gained $8.66 to $123.00.
Rio Tinto Alcan today announced a US$90 million (A$101.5 million) investment in the modernisation of its Lochaber aluminium production plant in Scotland.
In the US overnight, the Dow Jones industrial average dropped 37.47 points to 12,442.83, the Standard & Poor's 500 Index finished down 6.49 points at 1,355.81 and the Nasdaq Composite Index declined 9.06 points at 2,349.00.
Making news today, Alumina has posted a 14.6 per cent fall in annual earnings and says it's likely to incur higher operating costs in 2008 due to rising energy prices and shipping costs.
Alumina shares finished 26 cents lower to $5.24.
Iron ore producer Mount Gibson Iron Ltd is investigating whether various Chinese parties that have taken a substantial stake in the company are associated.
Its shares edged down one cent to $2.61.
Beach Petroleum boosted first half sales revenue by 16 per cent on higher energy prices and forecast a stronger second half as its Bass Strait project is again producing at full throttle.
Beach shares closed 5.5 cents stronger at $1.385.
The big banks were mixed. Commonwealth Bank gained 40 cents to $49.40, ANZ added two cents to $26.01, Westpac fell two cents to $25.58, National Australia Bank soared 91 cents to $34.60 but St George was down 65 cents to $27.85.
Among media stocks, Consolidated Media Holdings edged up one cent at $4.46, Fairfax had gained three cents to $4.03, News Corp was down 55 cents at $21.40 and its non-voting shed 40 cents at $20.97.
Energy stocks were mixed despite oil prices ending higher overnight at US$92.33 per barrel. Oil Search dipped four cents to $4.26, Santos was 21 cents higher at $12.12 and Woodside Petroleum had gained 60 cents at $46.35.
The retailers were also mixed. Woolworths was 70 cents weaker at $28.80, Coles owner Wesfarmers was 55 cents stronger at $35.30, David Jones was down eight cents at $4.54 and Harvey Norman had lost 16 cents at $5.55.
At 1640 AEDT, the spot price of gold in Sydney was US$924.50 per fine ounce, up US$2.95 from yesterday's close of US$921.55.
Gold stocks were mixed. Newmont added eight cents to $6.19, Newcrest was down seven cents to $34.93, Lihir Gold was three cents weaker at $3.72 and AngloGold Ashanti had lost 17 cents to $9.25.
The top-traded stock by volume was Telstra Corporation, with 65.4 million shares worth $283.4 million changing hands.
Its shares closed steady at $4.34.
Preliminary national turnover was 1.65 billion shares worth $7.42 billion, with 542 stocks down, 692 up and 329 unchanged.
- AAP