(Bloomberg) -- The S&P/ASX 200 index erased an early loss and surged out of bear market territory amid hopes for government measures that will offset the economic impact of the spreading coronavirus.
Australia’s benchmark index rose 3.1% to close at 5,939.6, its largest gain since Nov. 2016, after having earlier declined as much as 3.9%. The market flirted with a bear run, briefly falling more than 20% from its Feb. 20 record amid growing concerns over the virus and a sharp plunge in oil prices.
The S&P/ASX 200 index followed U.S. stock futures higher after President Donald Trump promised “very substantial relief” for the economy as the coronavirus spreads. Contracts on the S&P 500 E-mini futures erased earlier losses as Trump said he’s considering payroll-tax cuts.
Australia’s government is also finalizing a fiscal package aimed at keeping companies in business and protecting jobs, as the outbreak hits an economy already reeling from a prolonged drought and a brutal summer of wildfires.
“Australia is on the front foot with an imminent announcement of sensible pre-budget stimulus,” said AMP Capital Investors Ltd. portfolio manager Dermot Ryan. “It’s always better to move early and keep economic momentum.”
Expect erratic swings in the market amid heightened volatility and lower liquidity, said Eleanor Creagh, a strategist at Saxo Capital Markets.
“Bear markets witness some of the fiercest upside rallies,” she said. “To have real confidence in buying into any relief rally, volatility needs to reset meaningfully lower -- that sentiment is flowing through to the Aussie market.”
A price war for oil sent energy stocks tumbling on Monday, pushing the S&P/ASX 200 to its biggest one-day retreat since 2008. Energy shares were among the biggest gainers Tuesday, helping to offset sharp declines on Monday. Viva Energy Group Ltd. was the top performer on the benchmark with a 14% jump, while Cooper Energy Ltd. closed 12% higher.
The nation’s big-four banks also soared on Tuesday. Westpac Banking Corp., National Australia Bank Ltd., Australia & New Zealand Banking Group Ltd. and Commonwealth Bank of Australia all posted their biggest advances since Prime Minister Scott Morrison’s shock election win last year.
(Updates with charts, market close)
