The Australian share market had a broad based gain, recouping part of Monday’s heavy losses, amid speculation China was seeking to buy into ailing European banks.
The domestic bourse rose more than one per cent in early trade following a late rally in US stocks that was triggered by a Financial Times report about China’s moves to purchase Italian bonds.
Local shares then pulled back somewhat, with the benchmark S&P/ASX200 index closing up 34.2 points, or 0.85 per cent, at 4,072.7 while the broader All Ordinaries index added 33.3 points, or 0.81 per cent, to 4,158.4.
Trading volumes were slightly below average, with turnover of 2.05 billion stocks, worth $4.66 billion.
“There’s not a huge amount of conviction,” CMC Markets chief market strategist Michael McCarthy said.
Mr McCarthy said investors were being cautiously optimistic about China’s discussions with Italian authorities, with the potential for Chinese investment houses to take on some of the impaired exposures in European banks.
Italian authorities had responded to the Financial Times report, saying bonds were not the primary focus, Mr McCarthy said.
“One of the suggestions that keeps coming up is there may be appetite from Chinese investment houses to take stakes in European banks at the share prices we’re seeing at the moment,” he said.
He said an example of such a bank was France’s Societe Generale, which had lost more than 50 per cent in value since August 1.
Mr McCarthy said Chinese investment in European banks “would be a major positive … but we’re being very cautious because it looks very much like a magic bullet”.
If the speculation was correct, it would take some time to determine where and how China would invest, so the market was not getting too carried away in the meantime, Mr McCarthy said.
Energy stocks outperformed, with the sector up about 2.8 per cent towards market close, compared to Monday’s five per cent fall.
Origin rose 49 cents, or 3.92 per cent to $13.00, Oil Search advanced 21 cents, or 3.6 per cent, to $6.05, Santos put on 30 cents, or 2.75 per cent, to $11.21 and Woodside gained 57 cents, or 1.75 per cent, to $33.14.
The best performing stock on the S&P/ASX100 index was engineering firm WorleyParsons, which provides services to the energy sector, up $1.18, or 4.81 per cent, at $25.70.
The worst performing company in that index was mineral sands miner Iluka, down 47 cents, or 2.99 per cent, at $15.26.
Market heavyweight BHP Billiton finished up 84 cents, or 2.3 per cent, at $37.29, while fellow mining giant Rio Tinto appreciated 70 cents, or 1.03 per cent, to $68.90.
Overall, 531 stocks closed higher, 490 finished weaker and 349 were steady.
On the ASX 24 at 1632 AEST, the September share price index (SPI) futures contract was up 41 points at 4,081 points, with 153,124 contracts traded.
Mr McCarthy said futures trading volumes were large on Tuesday, but that related to the expiry of the September SPI futures contract on Thursday rather than any lift in market participation.
