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AAP

2012-11-20

Australian stocks closed firmer amid optimism about the US tackling its deficit problems but underperformed offshore leads out of America and Europe.

At the close on Tuesday, the benchmark S&P/ASX200 index was up 24.3 points, or 0.56 per cent, at 4,385.7, while the broader All Ordinaries index was up 24.9 points, or 0.57 per cent, at 4,407.5.

On the ASX 24, the December share price index futures contract was 20 points higher at 4,399, with 25,651 contracts traded.

CMC Markets sales trader Ben Taylor said he thought investors were wary about how close US politicians were to resolving the country's deficit problems.

"The equity market seemed to be calling the fiscal cliff situation almost resolved, but I wouldn't be surprised to see bit of a fall leading into Thanksgiving (holiday on Thursday)," Mr Taylor told AAP.

"The US were up two per cent, we are only up 0.6 and the bond market isn't really buying it, suggesting they're taking a bit more of a cautious view."

The cliff refers to a looming US budget deadline, with tax measures and government spending cuts due to come in from January unless US politicians can agree on a long-term debt reduction plan.

Mr Taylor said he thought some of the volatility this week that sent stocks up involved traders buying stocks to cover their short positions - that is, stocks they had sold believing its price would fall.

"Quite a number of people with short positions were getting a little bit worried that the market looked like it could jump and I think this is really short covering pushing this market higher," Mr Taylor said.

One example was utilities company Origin Energy, whose stocks were punished less than a fortnight ago, sinking to four-year lows amid a profit downgrade and debt worries.

On Tuesday they leapt up by more than three per cent for the second consecutive day, closing 33 cents up at $10.58.

Mining stocks were the best performers, rising more than 1.3 per cent, which market watchers believe have been oversold on the fiscal cliff concerns.

BHP Billiton was 33 cents, or 1.11 per cent, higher at $33.58, while Rio Tinto had risen 77 cents to $57.48.

The biggest gold company on the bourse, Newcrest Mining, climbed 24 cents to $25.24.

Shares in engineering firm Monadelphous shot up after it bucked the trend of other mining services companies.

The company, which is also exposed to the infrastructure sector, said it expected its first half sales revenue to grow by 40 per cent due to record levels of new construction work.

Its shares closed up $1.24, or 6.12 per cent, at $21.50 but are still well below the $24-plus levels of April.

The Sydney gold price closed at $US1,733.64 per fine ounce, up $US10.95 from Monday's close of $US$1722.69.

National turnover was 1.3 billion securities worth $3.4 billion, with 522 stocks up, 418 down and 339 unchanged.

Greg Roberts