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Business confidence blow turns tables on solid start

The Australian sharemarket reversed solid opening gains after domestic business confidence tumbled and Chinese data showed the economy was far from rebalancing.

Wall Street closed marginally firmer last night, but after opening 0.5 per cent higher the S&P/ASX 200 index dropped into the red and closed up 1.7 points, or 0.03 per cent, at 5759.1 despite miners gaining on a rebound in commodity prices.

Spot iron ore bounced 1.8 per cent to $US88.26 a tonne and Dalian futures were up almost 4 per cent today.

Explaining the ongoing demand, China’s fixed-asset investment grew 8.9 per cent last month, up from 8.1 per cent as authorities continued to try and stabilise the world’s second-biggest economy with property and infrastructure spending.

However, retail sales growth decelerated to 9.5 per cent, unusually well short of the forecasts for a 10.4 per cent increase.

ANZ economist Betty Wang said with deleveraging remaining a top priority, the People’s Bank of China may step up its efforts to contain credit risk in the near term.

“The rapid credit growth and strong investment momentum may also dampen reform motivation and raise market criticism about China’s determination to push through structural reforms,” she said.

The Shanghai composite index was up 0.1 per cent at the close of the ASX.

The Australian dollar eased US0.1¢ to US75.60¢ and government 10-year yields were 1.1 points easier at 2.925 per cent despite a 5-point spike in US 10-years to 2.63 per cent ahead of an expected Federal Reserve rate rise tomorrow.

The NAB Business confidence index fell 3 points to 7, while the ANZ consumer confidence index also slipped back.

NAB said the pull-back, both of these indicators remain at levels consistent with solid business activity in the near-term, but “the longer-term growth picture that is more concerning, particularly as the contribution from LNG exports, temporarily higher commodity prices and the residential construction boom fade, putting pressure on the labour market”.

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