SYDNEY: Australian stocks closed 0.35 percent higher on Wednesday, reversing a Europe-linked dip after domestic inflation came in lower than expected, fuelling hopes of an interest rate cut.
The benchmark S&P/ASX 200 gained 14.6 points to 4,242.5 after inflation eased to 0.6 percent in the three months to September, hitting 2.5 percent over 12 months -- well within the Reserve Bank of Australia's target range.
Analysts said the benign figure had firmed the chances of an interest rate cut next Tuesday and offered some positive news ahead of a European Union summit later Wednesday which had seen the Sydney bourse open one percent lower.
"(There is) concern that the timetable for an agreement on a debt crisis plan appears to be slipping," said IG Markets analyst Stan Shamu.
The inflation data led the booming Australian dollar to fall from a six-week high of 105.01 US cents and was fetching 103.72 US cents in late trade.
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