MELBOURNE: Australian shares climbed 0.9 percent on Tuesday, their biggest one-day gain in two weeks, lifted by the retail sector as comments that US monetary policy would remain supportive sparked hopes for fresh interest rate cuts at home.
Wall Street advanced after Federal Reserve Chairman Ben Bernanke suggested the central bank would stick to its accommodative policy even as the labour market improves.
Analysts said the comments boosted local market sentiment on the belief the Reserve Bank of Australia would need to cut interest rates to help a soft domestic economy.
"With the current economic prosperity for Australians outside the mining boom becoming increasingly diminished, there is a growing expectation that the RBA will lower rates soon," said CMC Markets trader Ben Taylor.
Among top retailers, department store Myer climbed 2.8 percent, electronics chain JB Hi-Fi gained 1.9 percent and surfwear chain Billabong jumped 5.2 percent.
The weight of tight monetary policy and independent rate rises by commercial banks was evident in comments from property trust Stockland Group, which attributed a slowdown in residential sales that triggered a profit warning to bank rate hikes in February. Stockland shares fell 4.5 percent to A$3.00.
"Retailers are quite strong today and that would certainly suggest there are some interest rate cuts coming," said David Spry, research manager at F.W. Holst.
"The RBA have not read the economy as well as they should have; the Australian economy is struggling in quite a few areas and if it wasn't for the mining sector you would even have to say we could be in recession," he said.
The benchmark S&P/ASX 200 index climbed 38.5 points to 4,301.3, just above the key psychological level of 4,300 that has proved tough to break. The benchmark ended Monday down 7.5 points at 4,262.801 on concerns the global economic recovery may be losing momentum.
New Zealand's benchmark NZX 50 index rose 0.3 percent to 3,483.96 on Tuesday.
Shares in Rio Tinto, the world's third-largest miner, edged up 0.6 percent to A$64.10. The miner effectively invited bids for its diamonds business, on its books at $1.2 billion.
Agricultural chemicals group Nufarm Ltd tumbled 2.8 percent after it cautioned its European business was not on budget and that the company may leave markets where business risks were too high.
Shares in OZ Minerals rose 1.7 percent to A$9.69 after it said it had withdrawn from an auction for Romania's biggest copper mine.
Trade in Beach Energy shares was halted after the oil and gas producer said it planned to raise A$345 million ($363 million) through a sale of new shares and convertible bonds to help fund its drilling programme.
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