THE Australian sharemarket hit a fresh 17-month high today as US lawmakers inched closer to a deal on the fiscal cliff problem.
Utilities, energy, industrials, telecommunications, materials and financial stocks mostly rose despite some caution ahead of a seasonal contraction in liquidity.
"I'm very cautious heading into year end and January because we're moving into a period of very low liquidity, with the potential for high volatility from news flow around the globe," said Michael McCarthy, CMC Markets' chief market strategist. "However, the strong uptrend and low volatility currently suggest the rally is going to continue."
The benchmark S&P/ASX 200 closed up 0.5 per cent at 4617.8 after rising as much as 0.7 per cent earlier in the day to 4627.1 - its highest point since July 2011. The index was up 14 per cent for the year, versus a 15 per cent rise for Wall Street's S&P 500.
"The risk-on trade continues as fiscal cliff negotiations are progressing," said Morgan Stanley Smith Barney investment adviser Shannon Briggs. "It seems to be moving ahead at a faster pace than people were expecting. Personally, I think it could prove to be a 'buy-the-rumour-sell-the-fact type scenario', so maybe equity markets will pull back next week."
Australian investment bank Macquarie Group jumped 2.2 per cent after US peers surged overnight.
Resources stocks continued to benefit from a recent surge in iron ore prices, with BHP Billiton up 1 per cent and Rio Tinto and Fortescue Metals rising 1 to 1.4 per cent.
"Investors are generally underweight the miners, so there's been a 'fear of missing out' rally," Morgan Stanley Smith Barney's Mr Briggs said.
Gold miners suffered, however, with Newcrest down 2.9 per cent after spot gold fell 1.6 per cent on Tuesday.
The decline in gold followed news that Standard & Poor's upgraded its long-term debt rating on Greece's government bonds from "selective default" to B-minus following an improvement in the country's sovereign debt situation on the back of eurozone support.
High-yield stocks were well supported despite signs of profit taking on Commonwealth Bank, Westpac and Telstra. While Commonwealth Bank and Westpac closed slightly weaker, ANZ Bank, National Australia Bank and Telstra rose 0.5 to 0.9 per cent.
"It is clear that there's a fair bit of defensive money hiding in high-yield stocks, but I think the high-yield story has further to go," Mr Briggs said.
He said the Australian sharemarket "has a real chance of hitting 5000 next year," as dividend yields remain attractive. He added that China's economy looks to have bottomed, the European debt crisis has stabilised, the US economic recovery is being underpinned by quantitative easing, and the Reserve Bank of Australia was expected to keep cutting interest rates next year.
CMC Markets' Mr McCarthy cautioned that volatility could increase because of futures and options expiries tomorrow.
"I'm nervous about the market in the short term, and I'd be cautious about joining in right now if investors haven't already done so, particularly given that we have a very large expiry tomorrow," he said. "We will see volume surge tomorrow, but that will be the last opportunity for large institutional players to reposition themselves before year end."
December quarter SPI 200 futures and options and December equity options and index options expire tomorrow.
Billabong dived 13 per cent after slashing its full-year earnings guidance by about 40 per cent, even as it confirmed a takeover proposal from a consortium led by former director Paul Naude.
The struggling surfwear retailer said weak trading conditions in its Americas division and weaker-than-expected sales in Europe meant it now anticipated earnings before interest, tax, depreciation and amortisation, or ebitda, for the year to June 30 of $56 million ($US58.9 million) to $63 million in constant currency terms, down from its previous guidance of $100 million to $110 million.
Sims Metal, the world's largest publicly listed metal recycling company by market capitalisation, fell 3.3 per cent after it downgraded its first-half earnings guidance by 20 per cent, citing weak market conditions.
The ASX-listed group didn't specify a figure for earnings but had as recently as November expected underlying ebitda in a $110 million to $120 million range for the first half of this fiscal year.
OZ Minerals dived 10 per cent amid concern about its 2013 production outlook. The copper and gold miner was due to update the market in late January 2013.
