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Trading the Australian Share Market

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The Australian share market closed down for the first time in five days on Thursday, although it was only marginally negative, after hitting a fresh five-week high.

Falls by Westfield, Woodside Petroleum, Woolworths, Stockland, Amcor, QBE Insurance and Macquarie Group offset gains by BHP Billiton, Rio Tinto, Commonwealth Bank and Westpac.

The benchmark S&P/ASX 200 closed down 5.8 points, or 0.1%, at 4524.1, after bouncing from 4503.6 to 4531.6 in relatively quiet trading.

Traders pushed the Australian share market up after China's share market hit a two-month high, although the Shanghai index was only 0.3% higher in late trading.

Australia's financial sector initially weakened after Bank of America, Citigroup and Wells Fargo fell more than 1.0% after Moody's lowered its credit rating outlook to negative from stable because of the Dodd-Frank financial reforms in the U.S.

But Commonwealth Bank of Australia and Westpac closed 0.4%-0.8% higher, while ANZ and National Australia Bank weakened slightly.

Elsewhere in the sector, QBE fell 0.8% to A$16.58 and Macquarie fell 1.2% to A$38.39.

The property sector came under pressure, with Westfield down 1.8% to A$12.28, Stockland down 2.8% to A$3.79 and Mirvac down 2.9% to A$1.325.

In resources, BHP rose 0.7% to A$40.46, hitting its 200-day moving average, while Rio Tinto also rose 0.7% to A$71.50, after London Metal Exchange copper rose 1.6% overnight.

Woodside Petroleum fell 1.0% at A$41.72 after crude oil fell 0.8% to US$76.99.

Amcor fell 3% to A$6.59 after Citi initiated coverage with a sell rating.

Traders and strategists were generally optimistic, arguing that Australian banks should outperform their U.S. peers and resources should benefit from improved sentiment toward China.

The S&P/ASX 200 is down 7.1% so far in 2010 while the S&P 500 is almost flat.

Macquarie Equities said recent developments in China were highly promising, noting the Organization for Economic Cooperation and Development's China leading indicator is showing "every sign" of bottoming. Macquarie also pointed to the strong U.S. earnings season as evidence of a "far more positive case" for global growth than assumed by high equity risk premiums.

UBS reiterated its cyclical bias in its model Australian equities portfolio, via mining and industrial cyclicals exposure, because of strong valuation support and a constructive macro economic view. "Our expectation of only relatively modest further slowing in China followed by ongoing 8%-9% growth should also see risk aversion toward Australia improve in the second half," said UBS.

China's GDP is being pegged to stabilize near 9.0%, because of plans to boost the supply of low income housing and upgrade infrastructure, expected measures to boost consumption in the current half year and a likely relaxation of monetary tightening measures in the next three months.

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