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The Australian sharemarket closed three per cent higher for the week, as middling-to-positive leads from European stocks and Wall Street culminated in a solid weekly close, after China rejected reports it was considering reviewing its European bond holdings.

For the week, the benchmark S&P/ASX200 index gained 3.15 per cent to 4,457.5 points, while the broader All Ordinaries index jumped 7.58 per cent to 4,479 points.

AMP Capital Investors chief economist Shane Oliver said it looked like a correction in equities and commodities prices was under way, and a decent rally was beginning.

“Shares have become very oversold, they are great value again and investor sentiment has fallen to around levels often associated with market bottoms. We remain of the view that the cyclical recovery in shares that commenced in March last year is still on track,” Mr Oliver said.

“Economic data releases over the last week were generally positive with the highlight being strong durable goods orders in the US and strong profits which augurs well for employment and business investment going forward.

“European economic data appears to be holding up better than feared. Australian economic data was mixed – strong leading indicators but weaker than expected business investment in the March quarter,” he said.

The week began flat and trading remained volatile due to uncertainty about the economic data coming out of Europe and the US.

Bargain hunters escaped from the local market on Tuesday, causing a three per cent drop due to euro zone debt and financial regulation concerns, but the bourse tottered higher in the lead up to the weekend as part of a global equities correction.

Miners gain

Resources were largely stronger, with all the major miners putting on gains for the week.

BHP Billiton advanced 5.68 per cent to $38.97 and Rio Tinto jumped 9.69 per cent to $68.20.

Rio Tinto said it was reviewing projects in Australia, after chief executive Tom Albanese earlier in the week described the country as its top sovereign risk, but said demand from India and China made the company an “attractive proposition”.

Miners benefitted from suggestions that the government was planning to dampen the impact of its planned resource super profits tax by lifting the threshold of where it would kick in, but late on Friday the federal government announced it has given itself special permission to spend $38.5 million of taxpayer dollars to sell its mining profits tax to the people.

Fortescue Metals Group shot up 12.67 per cent to $4.19, despite chief executive Andrew Forrest saying the resources super profits tax would see Australian assets falling into foreign hands, that global investors were “fleeing” the country’s mining industry, and that the company may delay paying out a dividend.

Gold miners were mixed, with Lihir Gold rising 3.97 per cent to $3.95 while Newcrest Mining dropped 1.43 per cent to $32.04.

Oil companies benefitted from crude oil prices inching upwards, as Oil Search put on 4.48 per cent to $5.56, Santos added 3.96 per cent to $12.45 and Woodside Petroleum made up 4.54 per cent to $43.46.

Santos has received conditional Queensland state government approval for its Gladstone LNG project.

Mr Oliver said tougher drilling standards after the Gulf of Mexico oil spill was positive for crude oil prices in the future.

Banks rise

Financial stocks were higher for the week, with the big four banks posting gains.

National Australia Bank (NAB) was in the news all week. It was reported that NAB will need to sell off AXA APH’s North platform if is to have any chance of overturning the ACCC’s decision to block its takeover bid for the fund manager.

A report also showed it to be the least popular among the main four banks, and on Friday, NAB announced cuts and changes to senior executive positions as it undertakes a restructure in a bid to secure a bigger share of mortgages and deposits.

NAB closed the week 3.86 per cent higher to $24.78.

ANZ Banking Group swelled 6.91 per cent to $22.52, Commonwealth Bank of Australia climbed 2.02 per cent to $52.12 and Westpac Banking Group increased 4.49 per cent to $23.40.

Investment bank Macquarie Group edged up 0.19 per cent to $44.10.

In companies news, brewer Foster’s Group closed the week 11.01 per cent higher to $5.50, after announcing it will structurally separate its beer and wine divisions and create two listed entities, creating a potential takeover target in the distinct beer business in the process.

On Friday, airline Virgin Blue shares plummeted 27.90 per cent to 31 cents after slashing its full year profit guidance by 75 per cent, due to deteriorating demand and consumer confidence, and timber company Gunns rocketed 43.63 per cent to 39 cents after embattled chairman John Gay announced his retirement late Thursday afternoon.

Economic data mixed

In economics news this week, the Melbourne Institute Bulletin of Economic Trends points to Australia’s economic outlook remaining buoyant, but concerns about the impact of the European debt crisis on the global economy has lowered expectations for economic growth.

The Australian Bureau of Statistics published data showing private new capital expenditure dropped 0.2 per cent in the March quarter to a seasonally adjusted $27.03 billion. Data on construction work done in the March quarter showed a 1.9 per cent rise in activity, but this is lower than expected and driven mostly by public stimulus spending.

Mr Oliver said Westpac’s leading economic indicator rose strongly in March, which indicates solid economic growth in the future.

The week ahead

Mr Oliver expects the RBA to leave rates on hold at its board meeting next week, as a range of economic factors such as retail sales, consumer confidence and housing finance indicate the hikes are starting to take effect.

“On the data front we expect March quarter growth to reveal a bit of a soft patch in the economy with quarterly GDP growth of just 0.4 per cent (+2.3 per cent year on year) driven by a soft patch in retail sales and business investment,” he said.

“April data for retail sales are likely to rise just 0.3 per cent and building approvals are likely to fall back slightly after a 15 per cent rise in March.

“The April trade balance is likely to show a big improvement thanks to the commencement of higher contract prices for iron ore and coal,” Mr Oliver said.

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