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Shares kicked higher as investors welcomed a US-China trade deal and priced in future rate cuts after the government slashed economic forecasts.

The ASX 200 jumped 82 points or 1.2 per cent to 6822 by mid-session, less than 50 points from last month’s all-time closing high.

A broad rally lifted all sectors after leading US trade negotiator Robert Lighthizer said a ‘phase one’ trade agreement with China was “totally done”. The deal sees the US wind back tariffs on Chinese imports in exchange for Chinese purchases of US farm produce and progress on a range of contentious issues. US President Donald Trump said negotiations on a ‘phase-two’ deal would commence immediately.

US stocks closed flat on Friday, but the mood appeared to improve this morning. S&P 500 index futures were recently up seven points or 0.2 per cent.

Bond yields fell and the dollar eased almost a tenth of a cent to 68.77 US cents after Treasurer Josh Frydenberg released his mid-year budget. A downbeat budget appeared to resurrect the possibility of further rate cuts next year. The government downgraded its surplus forecast for this year, lowered its domestic employment and GDP expectations and cut its GDP outlook for China and the US.

“The implications for the RBA are clear at this juncture – it will need to continue to do the heavy lifting,” head of Australian strategy at Royal Bank of Canada told Fairfax.

Banks, health and consumer stocks spearheaded the rally. Virgin Money UK was the index’s standout for a second session following the Conservative Party’s landslide victory in last week’s UK election, rising 7.8 per cent. Financial services company HUB24 put on 4.4 per cent. A strong morning for the banks saw the big four all gain at least 1.1 per cent.

Health giants CSL and Cochlear rose 1.8 per cent and 1.5 per cent, respectively. Wesfarmers gained 1.6 per cent, Aristocrat Leisure 2.6 per cent and Crown Resorts 1.4 per cent.

Fortescue’s record run continued towards a sixth consecutive post-GFC high. The nation’s third-largest iron ore miner rose 1.2 per cent to $10.85. BHP hit its highest level since early August, advancing 1.4 per cent. Rio Tinto added 0.7 per cent. Mining services company Perenti slumped 18.4 per cent after losing a major contract in Ghana and cutting its profit outlook.

Fleet manager Smartgroup skidded 15 per cent on news it will take a $4 million hit to after-tax profits from changes made by its insurance underwriting partner.

Asian markets wound back some of Friday’s gains. China’s Shanghai Composite eased 0.1 per cent, Hong Kong’s Hang Seng 0.7 per cent and Japan’s Nikkei 0.1 per cent.

Brent crude futures declined 21 cents or 0.3 per cent this morning to $US65.01 a barrel. Gold slipped $3.10 or 0.2 per cent to $US1,478.10 an ounce.

What’s hot today and what’s not:

Hot today: shareholders in National Veterinary Care enjoyed a Christmas bonus when the veterinary chain’s board announced it had accepted a takeover offer from VetPartners. VetPartners, which owns more than 140 clinics in Australia, New Zealand and Singapore, offered $3.70 per share to acquire National Veterinary Care. The offer represented a 56.8 per cent premium to Friday’s last traded price. Shares in National Veterinary Care jumped 53 per cent this morning to $3.61.

Not today: pharmacy retailer Sigma Healthcare slumped to a six-week low after rival Australian Pharmaceuticals (API) announced it had abandoned an attempt to merge the two companies. Sigma has prospered since it knocked back API’s non-binding indicative offer back in March, rising from a low of 49.5 cents that month to a high of 75 cents in late November. The share price dived 5.5 cents or 8.3 per cent to 60.5 cents this morning after API announced it had sold its entire 137 million share stake in Sigma and was targeting other ways to create value for shareholders. API edged up 0.6 per cent.   

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