Within those sectors, CBA climbed 0.8 per cent to $75.78, BHP advanced 0.9 per cent to $28.92 and NAB rose 1 per cent to $29.56.

Rio Tinto traded flat at $75.23 after telling shareholders it sold its Hail Creek and Valeria coal assets in Queensland to Glencore.

Rio's other Queensland coal assets, Kestrel and Winchester South, remain on the market and Whitehaven Coal, EMR Capital and Adaro Energy are understood to be bidders. Whitehaven Coal surged 8.8 per cent to $4.58.

Bluescope Steel rose 4.4 per cent to $15.71 after Morgan Stanley started coverage on the steelmaker and assigned it an overweight rating and a $20 target price.

"Bluescope is well positioned to benefit from elevated steel spreads in its key US and Australian markets, in our view. This will see significant cash generation that should facilitate increased capital management and selective growth projects. We believe this will provide the next leg of upside," the analysts said.

On the downside, telecom Telstra lagged, losing 1.2 per cent over the session to end the day at $3.33.

Real estate firms also tend to be viewed as bond proxy stocks and several property companies lost ground, with Vicinity Centres down 1.6 per cent at $2.48 and Goodman Group down 1.2 per cent at $8.39.

What moved the market:

Piling up

Iron ore prices have declined 16 per cent this month as demand concerns grow, Commonwealth Bank of Australia finds. "Those concerns primarily reflect developments further downstream, as steel rebar stockpiles have increased to the highest level since 2013. Even adjusting rebar stockpiles to take into account crude steel production, inventories are at multi-year highs," strategist Vivek Dhar writes. This has flowed through to the iron ore demand profile. "There is still the chance that China's construction season has been delayed because of cold weather. But if steel demand doesn't pick up in coming weeks, we could see iron ore prices fall further."

Pumped up

Oil prices rose on Wednesday, supported by tensions in the Middle East and healthy global demand, although rising US output from the United States continued to weigh on markets. Brent crude futures were at $US67.58 per barrel, up 0.2 per cent. Saudi Arabia's Crown Prince Mohammed bin Salman arrived in Washington for a state visit, raising market speculation the United States could reimpose sanctions on Iran, following renewed criticism of the 2015 nuclear deal. Energy consultancy FGE said it was likely that the United States would restart sanctions soon, resulting in a 250,000 to 500,000 barrels per day drop in its exports by year-end.

Dollar

The US dollar index retreated a touch from a three-week high hit on Tuesday to trade at 90.27 as traders looked ahead to an interest rate meeting of the Federal Reserve where the Fed is widely expected to raise interest rates. While the US dollar has fallen following every 'dovish' rate hike this cycle, this meeting could see a different reaction from the dollar after speculation the Fed will upgrade its median interest rate projection for 2018. "If the FOMC was to increase the forecast pace of policy tightening in 2018 from three hikes to four hikes, we expect US interest rates and the US dollar to lift modestly," said Commonwealth Bank chief currency strategist Richard Grace.

Christmas hangover

Australian home loan arrears rose in January according to the Standard & Poor's Performance Index for Australian prime mortgages, which increased to 1.30 per cent from 1.07 per cent versus December 2017. Arrears typically increase in January, reflecting the impact of Christmas spending and summer holidays, the report says. "However, the magnitude of the month-on-month increase in January was higher than previous month-on-month movements. We believe the impact of incremental increases in interest rates during 2017 could be a contributing factor to the rise in mortgage arrears in January." S&P finds loans in arrears by more than 30 days increased in every state and territory in January and were the highest in Western Australia and lowest in NSW (at 0.98 per cent).

Stockwatch: Rio Tinto

Rio Tinto will receive $US1.7 billion from Glencore for its 82 per cent stake in the open-cut Hail Creek coal mine and 71 per cent stake in the adjacent Valeria thermal coal development. UBS previously valued Hail Creek at $US1.1 billion, so the deal price implies a long-term hard coking coal price of $US140 a tonne. "We expect another round of shareholder returns via a buy-back once cash is received and tax paid," said UBS analyst Glyn Lawcock who has a "buy" recommendation and $88.50 price target on Rio. Rio has other coal assets for sale: the Kestrel mine and the Winchester South resource which are valued at $US860 million with a $US120 a tonne hard coking coal price, or $US1.3 billion at $US140 a tonne. Whitehaven Coal is a suggested logical buyer.

With Reuters