SYDNEY/WELLINGTON – Australian shares rose to a fresh seven-year high on Monday as a Chinese rate cut pushed up resources stocks while growing expectations of a domestic rate cut prompted investors to buy banks.
On Saturday, China's central bank cut rates just as official data showed a second straight month of shrinking manufacturing activity. The move is expected to kickstart spending across the board, driving demand for key steel-making ingredient iron-ore.
Australian iron ore majors BHP Billiton and Rio Tinto rallied 1.7% and 1% respectively, pushing up the broader index.
Expectations the Australian central bank may announce a second 2015 rate cut on Tuesday or in the next few months at least fuelled expectations of a pickup in borrowing domestically, sending bank stocks higher.
The S&P/ASX 200 index rose 43 points or 0.74% to 5973.1 by 01:45 GMT, its highest intraday level since May 2008.
"It does look as though, as often is the case, there's a bit of an announcement effect following the rate cut," said CMC Markets chief analyst Ric Spooner, referring to the China rate cut.
In terms of an Australian rate cut, Spooner added, "there is a consensus view it's that if it isn't tomorrow it's by May".
Australia's so-called "big four" banks - Westpac Banking Corp, Commonwealth Bank of Australia, Australia and New Zealand Banking Group and National Australia Bank each rose 1% on in the hope that a rate cut would drive up borrowing.
Energy stocks were higher after a sharp rebound in the oil price on Friday. Energy retailer Caltex jumped 1.4% while oil producer Santos added 1.6% and Oil Search firmed 0.3%.
Department store giant Myer Holdings dropped 13% to its lowest in a month after its long-standing chief executive officer stepping down.
New Zealand's benchmark NZX share index edged up 9.70 points or 0.2% to an lifetime intraday high of 5 888.17, lifted by gains in Air New Zealand and Precinct Properties.
Air New Zealand climbed 1.4% to its highest since mid-2007, extending gains after the national carrier raised its half-year dividend and issued an optimistic outlook for future earnings.
Property developer Precinct rose 1.3% saying late last week that it had raised roughly NZ$74-million from institutional investors as part of a NZ$174.1-million capital raising.
Online accounting software developer Xero fell 1.8% as some investors booked profits on a 54% rise seen in past weeks, when the company announced a capital raising.