Trading activity among 2nd and 3rd liner stocks started to pick up on Tuesday afternoon and continue yesterday.
The leader group was the S-chips, which attempted to and broke out of their 1-2 weeks long sideways consolidation band.US market's overnight rally should see follow through gains among small caps in early session trade but China's decision to shift its monetary policy from 'prudent' to 'tight' next year could be taken as a reason for short-term profit taking.
The Chinese government is concerned that inflation and the bubble in asset prices could threaten social stability. Bargain hunt only on pullback rather than momentum buying into strength is preferred for S-chips that have risen in the past two days.
STI should spurt above the Monday high of 3570 but upside should be capped at below 3640 as market awaits US employment data scheduled for release tomorrow. US markets rallied on positive economic news and after regulators and lenders agreed to freeze interest rates on subprime mortgages for a period of five years.
The ADP report showed that the private sector expanded at a faster pace in November, fueling optimism that Friday's job data may show that the US economy is not dipping into the brink of a recession.
However, the ADP report is noted to be highly volatile. In separate economic data releases, factor orders went up while the non-manufacturing sector continued to grow. Still, one day of positive data does not wash away concerns about a US economic slowdown.
Watch too, for oil price movement. OPEC has left production quotas unchanged.
Federal Reserve is looking for additional ways to increase credit to companies and consumers. It may lower the discount rate, which is what it charges banks for short-term direct loans, by a quarter-point more than the benchmark rate.
Such a move would narrow the gap between the two rates, normally one percentage point, to a quarter-point and may spur lending.
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