The sharemarket pared losses after falling to a four-month low today as the market began to speculate on the potential for a surprise interest rate cut from the Reserve Bank of Australia.
A higher Australian dollar initially weighed on exchange rate-sensitive industrial equities, while also making traders wary of potential offshore selling in high-yield equities.
At 12.12pm AEST, the benchmark S&P/ASX200 was up 0.2 per cent at 4895.8 points after falling to 4864.7 in early trading. The index was up 5.2 per cent this year, having fallen as much as 7.3 per cent since May 20.
Traders said activity was relatively light before the Reserve Bank of Australia's 2.30pm AEST interest rate announcement.
Although the majority expected no change in rates, Bell Potter Managing Director Charlie Aitken said the Reserve Bank has an opportunity to deliver another surprise interest rate cut. "Personally I think the 'surprise' rate cut is on today. If I am right, all Australian asset classes will move sharply."
The Australian dollar fell to US97.4c after rising more than 2 per cent to US97.94c overnight.
Australian dollar-sensitive industrials including QBE, James Hardie and Resmed were down between 0.9 per cent and 1.9 per cent, albeit well above their intraday lows.
High-yield stocks pared intraday falls, with National Australia Bank up 1.2 per cent.
"There's an ongoing exit of international money out of the country," said Macquarie Private Wealth investment adviser James Rosenberg. "High-yield and defensive stocks are widely held by offshore investors after a huge amount of buying in recent years."
Resources found support from a bounce in commodity prices, with Rio Tinto, Woodside Petroleum, Fortescue Metals and Newcrest Mining up between 1.7 per cent and 5.7 per cent after commodities including iron ore, gold, oil and copper gained between 0.4 per cent and 1.8 per cent as the US dollar fell overnight.
Billabong dived 41 per cent to 27c after ending takeover talks with two separate consortia involving Sycamore Partners and Altamont Capital Partners.
The surfwear retailer warned that fiscal 2013 earnings would fall to between $67 million and $74m versus previous guidance of up to $81m.
