THE dollar reached its highest point yesterday since early May, as growing concern about the US's fiscal position hampered the greenback. The currency was also boosted after Reserve Bank governor Glenn Stevens said Australians should not be too concerned about slowing household consumption and that he was optimistic about the prospects for the local economy. At 5pm AEST, the dollar was trading at $US1.0931, up US1.18c from Monday's close. The currency also rose against the yen. The sharemarket recovered yesterday after Wall Street proved resilient to the impasse in talks about the US debt ceiling at the weekend. While most investors don't think the US will default on its debt, the debt-ceiling impasse, combined with investor caution before the local earnings period, continued to generate a lack of interest in the local sharemarket. The benchmark S&P/ASX 200 Index closed up 1 per cent at 4573.3 on light share trading volume after hitting an intraday high of 4582.7. And according to Dow Jones Newswires technical analysis, the index is rising towards an important downtrend line at 4610 drawn from the April 11 peak. On Monday night, Wall Street's S&P 500 fell 0.6 per cent amid a lack of progress on the US debt ceiling, but the fall was less than half that anticipated by Asian markets. The US debt impasse continued yesterday, with President Barack Obama warning that the budget deficit could do "serious damage" to the US economy, that a debt default would be "reckless and irresponsible", and that the Republicans' deficit reduction plan was "dangerous". A senior trader at a major brokerage said the market was focused on what was happening in European and US debt markets, and "when you combine that with the fact that we are heading into the local reporting season, you have a recipe for people not to do very much down here". Heavyweight stocks in the resources and financials sectors outperformed after bearing the brunt of Monday's selling by investors who were raising funds to buy Transurban shares after a $903 million selldown by Canada Pension Plan Investment Board. "The Australian sharemarket was very oversold (on Monday)," Macquarie Private Wealth division director Martin Lakos said. "Part of Monday's selldown was due to concern about US debt-ceiling risk, but there was also quite a bit of selling by the buyers of Transurban stock." Iluka surged 4.5 per cent to $19.25 before it announced, after the close of trade, that it planned to resume mining in the Eneabba area in Western Australia in response to tight supply conditions in high-grade titanium dioxide and zircon. In the financial sector, banks rose by 0.8-1.3 per cent. Macquarie Group gained 1.5 per cent; National Australia Bank was up 19c, or 0.77 per cent, at $24.82; ANZ Banking Group rose 24c, or 1.13 per cent, to $21.55; and Westpac added 10c to $21.36. The big miners also closed in good shape, with BHP Billiton up 46c at $43.52, despite the Federal Court ruling that a non-union collective agreement covering workers at its Pilbara operations was invalid. Rio Tinto closed up 93c at $82.99. Energy stocks also performed well. Oil Search shares added 18c, or 2.67 per cent, at $6.91, after it announced second-quarter operating revenues had jumped 42 per cent. Woodside Petroleum rose 63c, or 1.62 per cent, to $39.48, and Origin Energy gained 26c, or 1.74 per cent, to $15.22. Newcrest Mining dropped 17c, or 0.42 per cent, to $40.18. Retailers closed weaker, with Coles owner Wesfarmers down 20c, at 30.22, and Woolworths falling 2c to $27.40. Telstra eased 1c to $3.03. "In my view, this remains classic political theatre in Washington, with no US politician truly stupid enough to let the US default," Bell Potter managing director Charlie Aitken said. "If we were truly on the cusp of a US debt default, gold would be $3000 an ounce, the US dollar would be 25 per cent lower, and the Dow 4000 points lower."

Source