The sharemarket recovered as investors piled into high-yield stocks after Thursday's steep decline, which followed the release of US Federal Reserve minutes showing growing concern among Fed members about potential side-effects of its quantitative easing.
The benchmark S&P/ASX 200 closed up 0.8 per cent at 5018.5, but it was well below the day's high of 5055.3. On Thursday, it tumbled 2.3 per cent, the biggest one-day percentage fall in nine months.
Analysts said markets overreacted to the Fed minutes because the voting members of the US central bank were likely to remain in favour of quantitative easing this year.
"Anyone who sold on the minutes will be disappointed because voting Fed members remain dovish, and chairman Ben Bernanke is likely to confirm that next week," IG Markets chief market strategist Chris Weston said.
Among high-yield stocks, the major banks rose between 0.6 per cent and 1.4 per cent and Telstra rose 1.3 per cent, but all finished well below intraday highs.
Transpacific surged 13 per cent after its first-half net profit more than doubled to $42 million. Crown rose 1.7 per cent after its underlying first-half profit increased a higher-than-forecast 15 per cent to $243.5 billion, and Santos climbed 1.3 per cent as its underlying profit rose a better-than-expected 34 per cent to $606m.
Billabong dived 5.5 per cent after reporting a $537m loss, driven by a $567m impairment charge on the value of its brands and investments. In comments that may test the appetite of two US consortiums bidding for the surfwear maker, Billabong warned it continued to face difficult conditions in Europe.
The dollar rallied strongly after the RBA signalled it might be done cutting interest rates. At 5pm AEDT, the dollar was trading at $US1.0313, up US0.78c. "Overall, there is a good deal of interest rate stimulus in the pipeline," RBA governor Glenn Stevens told a parliament hearing. "I feel we are at the appropriate level right now."
The dollar soared on his comments, the market pricing in a 22 per cent chance of a March rate cut, down from 30 per cent.
"The comments gave no hint the bank was considering acting on its easing bias," said Paul Brennan, chief economist at Citigroup, adding that the RBA might still need to cut one more time if the shift in the economy away from mining investment towards housing construction and stronger retail spending later this year wasn't smooth.
