The sharemarket initially faltered at the start of trade, dropping nearly 1 per cent, before trading into the black towards the afternoon after Australia’s unemployment rate unexpectedly dropped to a five-month low.

The fall to a jobless figure of 5.9 per cent slashed expectations for further Reserve Bank rate cuts, while the fresh signal of a recovery in the economy lifted stocks into positive territory.

By the 4.15pm (AEDT) official market close, the benchmark S&P/ASX200 index was up 31 points, or 0.06 per cent, to 5125.7, while the broader All Ordinaries had gained 0.9 points, or 0.02 per cent, to 5182.

The Australian Bureau of Statistics said nearly 60,000 jobs had been added to the economy over the last month, blowing expectations out of the water and sparking a sharp rally in the Australian dollar.

Local equities surged on the result, despite analyst predictions of a rate cut diminishing quickly.

Goldman Sachs flipped on its previous forecast of an RBA rate cut this year, with the bank’s analysts now saying a 2 per cent official cash rate is as low as the central bank will go.

IG market analyst Chris Weston said last week’s inflation data would have all but finalised a move to 1.75 per cent in the cash rate, but today’s October employment print had seen the market lower the probability of a cut in February to 27 per cent, down from 56 per cent before the data release.

“That fact is, employment is improving and from what we have seen, the RBA’s view that the ‘prospects for an improvement in economic conditions had firmed a little’ looks real,” Mr Weston said.

CommSec chief economist Craig James said the figures were hard to believe, but put the strong lift in employment to improved confidence levels, low interest rates, stimulus to the small business sector and strong home building.

Mr James said it was important to note that 197,500 jobs were created over the past year -- the biggest annual job gain recorded in four-and-a-half years.

“Clearly the Reserve Bank got the call right by leaving interest rates unchanged earlier this month, identifying an improvement in the economy,” Mr James said. “And clearly there won’t be another rate cut in 2015.”

On the local exchange financials were modestly higher, helping to offset significant losses in mining and energy stocks.

Overnight, oil prices had retreated on fears of a seventh straight weekly increase in US crude inventories while iron ore’s price was steady.

Oil and gas firm Santos tumbled as a trading halt was lifted after completing an institutional capital raising, while iron ore miner BHP dove towards a 10-year low as the fall out from its collapsed Brazilian tailings dam continues to plague the company.

Looking ahead, tomorrow the ABS releases lending finance data while Lend Lease holds its annual meeting.

Business Spectator