The Australian share market has put in a U-shaped performance today, rallying initially, selling off after the release of CPI data and then rallying back to positive territory.

Thin volumes suggest that short term trading interests dominated the day's action. The softer than expected CPI moderated expectations of higher interest rates and sparked an immediate sell off of the Australian dollar.

This started a panic amongst the day traders, prompting them to exit long positions and in turn triggering stop-loss selling. Once the panic subsided, the market resumed its steady upward march.

Big banks stood out, advancing on lower than anticipated capital requirement rules indicated by the world's central bankers in Basel. All four major banks are set to post gains for the fourth day in a row. In contrast, the medium to small finance stocks were weak, with the exception of insurance companies which regained some recent losses.

This large cap outperformance was repeated across sectors - BHP and Rio rose, in contrast to falls in smaller resource stocks. Wesfarmers powered ahead, despite general weakness in the consumer staples sector. Energy stocks were the exception and the worst performers on the day, after the oil price plunged overnight.