By Maggie Lu Yueyang
SYDNEY (Reuters) - Australia's leading share index is expected to rise more than 10 percent in 2014, driven by a weaker currency and record-low interest rates pushing up company earnings, a Reuters poll showed.
The S&P/ASX 200 index <.AXJO> is forecast to reach 5,800 by the end of next year, a 13.6 percent gain on Wednesday's close, according to the median forecast from 13 analysts taken in the past week.
Estimates ranged from as low as 4,900 to as high as 6,300, with miners seen as likely to outperform and a robust housing market set to lend support.
"We think earnings are going up rather than valuations, due to a lower Australian dollar and a pick-up in the domestic economy," said Dean Dusanic, a strategist at UBS.
The Australian dollar has lost 13 percent this year, as the Reserve Bank of Australia kept the cash rate at a record low of 2.5 percent and repeatedly talked down the currency.
The likelihood of the U.S. Federal Reserve tapering its bond buying programme is also likely to weigh on the Australian dollar and provide a further boost.
"(We) expect lower AUD/USD as tapering plays out and this will support Aussie stocks with USD earnings," said Paul Brunker, managing director of research at JP Morgan.
For heavyweight miners, a highlight of 2013 has been the resilience of iron ore prices despite increased production, which, combined with a lower exchange rate, suggests the potential for earnings upgrades, said Wilson HTM's investment advisor Jonathan Fyfe.
"Another period of resource sector outperformance is possible, particularly if we see higher cash flow available to shareholders," Fyfe said.
The majority of economists in a separate Reuters poll on Monday expect the Fed to start tapering in March.
For mid-2014, the index is expected to trade at 5,540, a touch lower than the five-year high of 5,457.3 reached on October 28. The benchmark has gained about 9 percent so far in 2013.
HOUSING RECOVERY A PLUS
Record low interest rates have built confidence in the residential housing market, sending home prices in Australia's capital cities up around 9 percent this year.
"That (improvement in residential) has very strong flow-on effects to the economy," said Michael Heffernan, economist at Lonsec.
"That's a very significant plus-point for the economy and the market always anticipates that, so the market should be ahead of the game next year in doing well."
But some economists noted Australian banks, having run up to record highs this year, looked relatively expensive from a global perspective and are also sensitive to higher bond yields.
(Additional reporting by Thuy Ong; Editing by Lincoln Feast and Jacqueline Wong)