The sharemarket rose yesterday, led by BHP Billiton after its first-half production report broadly met expectations.
Australia's big four banks climbed on speculation that interest rates may drop further.
The benchmark S&P/ASX 200 closed up 0.2 per cent at 4787.8 points, having touched a high of 4808.2 earlier in the session. BHP Billiton's shares rose 1.3 per cent after its production report showed continuing strong growth at its Pilbara iron ore operations - as well as a 12th straight half-year output and sales record.
"The report was slightly mixed, but overall the market's quite happy with it," said Stan Shamu, a market strategist at IG. "There's nothing too surprising in there."
Shares in the big four banks rose, with market analysts suggesting investors may be after their high dividend yields amid speculation official interest rates may have further to fall, following a tame inflation reading.
They said the high yields might be more attractive than fixed-interest investments such as term deposits, especially if interest rates fell further.
The December quarter consumer price index rose 0.2 per cent from the previous quarter and 2.2 per cent from a year earlier, staying well within the central bank's 2-3 per cent inflation target.
Savanth Sebastian, an economist at Commonwealth Bank, said in a note that the reading gave the Reserve Bank scope to cut the cash rate from its current 3 per cent if it decided it needed to.
Westpac rose 1 per cent, National Australia Bank gained 0.6 per cent, ANZ Bank added 1.1 per cent and Commonwealth Bank advanced 0.2 per cent
In other corporate news, goldminer St Barbara jumped 12 per cent after saying quarterly gold output rose 19 per cent and forecasting that production would continue to rise through to June.
Pesticides maker Nufarm dropped 9.2 per cent after warning that profit at its Australian business was expected to fall sharply in the second half of the year.
Coca-Cola Amatil climbed 1.7 per cent after Citigroup analysts lifted their rating on the fizzy-drink maker to buy from neutral on anticipated growth in sales volumes.
The dollar fell slightly against the greenback as a slower than expected rise in consumer prices in the fourth quarter stoked the case for a further interest rate cut.
At 5pm AEDT, the currency was buying $US1.0539, down US0.16c.
Economists said there was unlikely to be a rush by the RBA to further slash rates, and it might keep the key rate unchanged at 3 per cent at the next policy meeting on February 5.
"We doubt, however, that this result will get the RBA board across the line to ease in February," said Adam Boyton, chief economist at Deutsche Bank.
A recent strong rise in iron ore prices, a major component of Australia's export basket, might well stay the hand of the central bank, Mr Boyton added.
A survey of 18 economists by The Wall Street Journal yesterday confirmed that few expect a cut in February -- 13 out of 18 economists expect no change in the RBA's key rate.
Market pricing for a rate cut rose only slightly over the day, from around 33 per cent to 38 per cent.
The next hurdle for the Australian dollar is expected to be the ongoing budget crisis in the US, with congress expected to debate a temporary extension to the debt limit overnight.
