Australian shares have recouped some of yesterday's big losses after the worst one-day decline in nearly seven months, and Santos and Oil Search move forward with their merger plans. 

The market climbed robustly in early trade rising by nearly 1 per cent.

By the end of the day, the All Ordinaries index closed up 0.6 per cent to 7,706. 

The ASX 200 index rose 0.5 per cent to 7,407, with nearly all industry sectors higher aside from health care.

Leading the gains on the benchmark index were education firms, miners and oil stocks.

Some of the best performers were business software firm Nuix (+4.3pc), metal recycler Sims (+3.1pc) and miner and mining contractor Mineral Resources (+5.6pc) thanks to higher base metals prices. 

Among the firms losing ground were toll road operator Atlas Arteria (-0.9pc), real estate investment trust Waypoint (-0.7) and vaccine maker CSL (-1pc).

Yesterday, Australian shares fell nearly 2 per cent, with investors worried about the economic impact of the rapidly spreading Delta variant. 

Over the week, the ASX 200 lost 1.5 per cent. 

At 4:45pm AEST, the Australian dollar was up nearly 0.14 per cent to 73.77 US cents.

$21 billion oil giant merger

Shares of energy firms Santos (+0.5pc) and Oil Search (+2.2pc) jumped after they announced they would  press on with their planned $21 billion merger to create a regional behemoth that would be one of the 20 biggest oil and gas firms in the world.

The Oil Search board unanimously supported the merger deal and recommended that investors vote in favour of the transaction.

Investors in Oil Search will get 0.6275 Santos shares for each Oil Search share they own. 

But Papua New Guinea could be the sticking point, with concerns about foreign ownership as Oil Search is majority-owned by the PNG government. 

Santos and Oil Search have assets across Australia, North America, East Timor and Papua New Guinea. 

A combined company would be led by Santos managing director Kevin Gallagher. 

He said the merger would create a company with the strong balance sheet and strong cash flows necessary to successfully navigate the transition to a lower carbon future. 

Energy analyst Bruce Robertson, from the Institute of Energy Economics and Financial Analysis, said it was possible that PNG could block the deal because of its concerns.

The deal also needs regulatory approval and Papua New Guinea court approval. 

Mr Robertson said energy firms were rushing to merge as financing options dried up in the move towards net zero emissions in line with the United Nations climate change treaty known as the Paris agreement. 

"It's part of a global trend that is happening, of consolidation in the oil and gas industry."

Dan Gocher from the Australasian Centre for Corporate Responsibility said the merger compounded the risk of a combined energy business becoming insolvent and the value of the assets having to be written off in a low-carbon world.

Oil firms warned of 'stranded assets'

A London-based environmental think tank said the world's largest listed energy companies would undermine global climate targets unless they slashed production. 

The report, by Carbon Tracker, found that achieving net zero emissions by 2050 would require a rapid wind down of output to enable oil and gas companies to align with the Paris Agreement target of limiting global warming to 1.5 degrees Celsius.

Loading

Its authors, Mike Coffin and Axel Dalman, said companies had not woken up to the "seismic implications" of the IEA's finding that there could be no investment in new oil and gas projects if the world was to limit climate change.

"The upshot is … that fossil fuel use must fall," they said.

"Lower oil and gas demand means lower prices and greater competition for market share, in turn creating even less space to develop new projects while still earning a sufficient return." 

The report found that ConocoPhillips was the most exposed oil giant, followed by Chevron, Eni, Shell, BP and ExxonMobil.

It said $US18 billion ($24 billion) in projects approved last year were not consistent with limiting global warming to 1.65 degrees Celsius.

Even companies with "net zero" commitments, such as Shell and BP, planned to explore for new oil and gas fields.

The report warned investors that, if companies continued with a business-as-usual approach, they risked wasting more than $US1 trillion on projects that would not be competitive in a low-carbon world, and some could even face insolvency.

Oil, iron ore lose ground

Oil and iron ore prices fell overnight because of China's plans to tap its state oil reserves for the first time.

But Brent crude picked up 0.9 per cent in Asian trade to $US72.06 a barrel after oil giant Shell cancelled some US crude exports after Hurricane Ida disrupted production. 

Spot gold rose 0.4 per cent to $US1,801.71 at 4:50pm AEST.

'The lady isn't tapering'

In Europe, the European Central Bank kept official interest rates on hold at zero for its main refinancing operations, at 0.25 per cent for its marginal lending facility and at 0.50 per cent for deposits.

It also said that it would "moderate" or slightly reduce its government bond purchases.

ECB president Christne Lagarde echoed former British prime minister Margaret Thatcher"s famous phrase, "The lady's not for turning", by denying that the central bank was winding back its 1.85 trillion euro ($2.96 trillion) pandemic relief.

Loading

"What we have done today … unanimously, is to calibrate the pace of our purchases in order to deliver on our goal of favourable financing conditions.

"We have not discussed what comes next."

The ECB chief said euro zone inflation rose to a decade high of 3 per cent in August and GDP across the 19-member common currency bloc gained 2 per cent over the second quarter, which was more than forecast.

European markets pared their losses after the ECB announcement. 

The FTSE 100 in London lost 1 per cent, to 7,024, the DAX in Germany has gained nearly 0.1 per cent, to 15,623, and the CAC 40 in Paris rose by 0.25 per cent, to 6,685.

New job claims fall to pandemic low

The S&P 500 ended lower after weekly jobless claims fell to a near 18-month low, allaying fears of a slowing economic recovery, but also stoking worries that the US central bank could move sooner than expected to wind back its pandemic stimulus.

According to the US Labor Department, new claims for state unemployment benefits dropped 35,000 to a seasonally adjusted 310,000 last week, the lowest level since March last year in the midst of COVID-19 initial lockdowns. 

Those figures suggested that job growth could be hindered by labour shortages rather than cooling demand for workers.

The Dow Jones Industrial Average fell 0.4 per cent, or 152 points, to 34,879; the S&P 500 lost 0.5 per cent, or nearly 21 points to 4,493; and the tech-heavy Nasdaq Composite dropped 0.25 per cent, or 38 points, to 15,248.

Infrastructure Capital Management's Jay Hatfield said he saw the market as range-bound, with the S&P 500 trading between 4,400 and 4,600.

"Today, because of the jobs claims report, everyone is buying cyclical stocks."

Reports that Beijing slowed down approvals for all new online video games sent shares of US listed gaming stocks Activision, Blizzard, Electronic Art and Take-Two Interactive Software down more than 1 per cent.

ABC/Reuters