THE sharemarket recovered in quiet trading, as the strength of the dollar fuelled expectations of renewed demand for risk assets. Energy, industrials, materials and financials also outperformed. The benchmark S&P/ASX 200 closed up 33.6 points, or 0.7 per cent, at 4638.9, after hitting 4648.2 in late trading, then losing 10 points in the closing stages. The index rose 1.7 per cent for the week, up three weeks in a row. Wednesday's high of 4670.1 was the highest level in four months. The Australian dollar yesterday traded near its highest point against the US dollar in two years -- a level it set two days ago. The currency surged broadly for much of the late morning and early afternoon in Asia, partly helped by the release of the People's Bank of China's latest financial stability report. The Australian dollar was at US94.39c, up US0.84c, and near the two-year high of US94.58c, set on Wednesday. Against the Japanese yen, the currency was at Y=80.87, up from Y=79.765. But Australian bonds plummeted, particularly on the short end of the curve, as traders continued to increase bets the Reserve Bank of Australia would increase interest rates in the coming months. On a positive note, S&P 500 futures were up about 0.6 per cent, after both Oracle and Research in Motion released improved earnings guidance in after-hours US trading. "Obviously we need to see a more convincing performance from Wall Street before we get the next leg up, but I think the market will continue to try and hold on above 4600," RBS head of domestic sales trading Justin Gallagher said. An institutional trader at a major brokerage said that while the domestic equity market was quiet before the weekend, the strength of the Australian dollar could trigger significant buying of equities, particularly banks. Energy stocks rallied yesterday, despite weaker crude oil prices overnight, with Santos up 3.6 per cent to $13.10 after raising E650 million ($900m) from a hybrid issue to fund its share of the construction of its proposed liquefied natural gas project in Queensland. The debt raising will shrink the size of any potential equity raising needed by Santos to build the project and also shows that European hybrid markets remain liquid amid lower underlying bond yields and volatility in other capital markets. Origin Energy, which has a major coal-seam gas joint venture with Conoco Phillips, rose 2.9 per cent to $15.90 on the back of the strength in Santos. UBS head of sales George Kanaan said the debt raising by Santos would further ease the recent concern about the availability of debt funding for banks. Major banks rose 0.1-0.7 per cent, despite a fall in their US peers. Elsewhere in the financial sector, Macquarie Group rose 1.8 per cent to $36.67. In materials, BHP Billiton rose 0.4 per cent to $38.90, while Rio Tinto surged 2.4 per cent to $75.53 and Newcrest rose 3.3 per cent to $41.50. Among industrials, Brambles surged 3.7 per cent to $6.41, while Leighton Holdings rose 1.3 per cent at $34.02 on news of a proposed takeover of its German parent, Hochtief, by Spain's Actividades de Construccion y Servicios.

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