Australian shares’ biggest jump in seven months as Fed holds the line

Australian shares posted their biggest daily jump in seven months amid a rally in global equities after the United States Federal Reserve provided reassurance it plans to keep its monetary policy supportive for many months to come.

The benchmark S&P/ASX 200 Index jumped 85.5 points, or 1.6 per cent, on Thursday to 5468.2, while the broader All Ordinaries Index added 1.5 per cent to 5446.4, as the Australian market also got a boost from a lift in the iron price. It was the biggest daily jump on the ASX since December 19.

Local shares followed equity markets in the United States, Europe and the United Kingdom higher as investors turned their attention away from the ongoing geo-political risks in Iraq and toward the US Fed and the Bank of England, which both kept interest rates on hold.

As expected, the US Federal Reserve Open Market Committee kept US interest rates on hold and tapered its monthly program of asset purchases from $US45 billion to $US35 billion. A statement accompanying the decision indicated that despite recent signs the US economy is improving, including higher inflation and stronger jobs data, rates will remain on hold till late next year.

“Investor sentiment was bolstered by the June FOMC meeting outcomes, as well as a speech delivered in London on Wednesday by Chinese premier Li, in which he confidently stated that the globe’s number-two economy would avoid a hard landing,” Patersons Securties chief strategist Tony Farnham said.

On the local bourse, mining was the best-performing sector, up 2.7 per cent after the spot price for iron ore, landed in China, lifted 1.1 per cent to $US90.30 a tonne. It was the second session in a row the iron ore price lifted after starting the week at a 21-month low.

Resources giant BHP Billiton spiked 3.3 per cent to $36.43. BHP’s main rival Rio Tinto jumped 2.3 per cent to $59.24. Rio told its customers on Tuesday night that it would increase discounts on its low-grade iron ore from 6 per cent to 13 per cent from July 1. Fortescue Metals Group, the third largest iron ore miner, rose 5 per cent to $4.22.

Rail operator Asciano, which services the mining industry, jumped 6.1 per cent to $5.55 after telling shareholders it plans to axe 500 jobs by the end of the month in a move to control costs, enabling it to reiterate its full -year profit guidance.

Crude oil prices lifted on reports insurgents in Iraq had seized a major oil refinery. Around 4:30pm AEST on Thursday Brent crude oil was trading around $US114.71 per barrel. Australia’s biggest oil producer Woodside Petroleum recovered 1.5 per cent to $41.50, after sliding 4.6 per cent the previous day after striking a deal to buy back a 9.5 per cent stake from Royal Dutch Shell.

The big four banks all pushed ahead amid the promise of continuing low US interest rates. Commonwealth Bank of Australia lifted 1.6 per cent to $82.30, while Westpac Banking Corporation added 1.8 per cent to $34.45. ANZ Banking Group rose 1.6 per cent to $34.28, and National Australia Bank gained 1.8 per cent to $33.59.

Among other major blue-chip stocks Telstra Corporation lifted 1.4 per cent at $5.24. Wesfarmers, owner of Coles, rose 1.3 per cent to $41.79, but rival Woolworths fell 0.2 per cent to $35.77.

Ten Network was the worst performing stock in the ASX 200, dropping 6.9 per cent to 27¢ after the television company warned it expects revenue in fiscal 2014 to be up to 4.5 per cent lower than last financial year due to declining advertising revenue.

Junior goldminer Beadell Resources was the best-performing stock in the ASX 200, climbing 7.8 per cent to 62.5¢, as the spot price of gold crept marginally higher to $US1278.51 per ounce.

Australia’s biggest gold producer, Newcrest Mining, added 2.4 per cent to $10.39 despite the previous days news it has been ordered by the Federal Court to pay a $1.2 million in fines over selective analyst disclosures.

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