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Australia's trade deficit narrowed in June, defying expectations of a widening, as a surprise increase in manufactured exports accounted for a flat mining performance, suggesting the impact of a weaker trade position on the economy in the second quarter won't be as severe as expected.

However, Australia's terms of trade are expected to continue weakening as a result of significant falls in key commodities exports, namely iron ore and coal, posing some resistance to the economy's recovery prospects.

The weighted average price of established houses in Australian capital cities rose 4.2% in the second quarter from the first quarter, the Australian Bureau of Statistics said.

Economists had expected a rise of 2.0% in the second quarter from the first.

The bureau's house price index also showed the weighted average price of established houses in Australia's eight capital cities was down 1.4% from the year earlier quarter of 2008.

Activity across Australia's manufacturing sector also showed some signs of improvement in July, buoyed by economic stimulus and a rundown in inventories.

The Australian Industry Group/PricewaterhouseCoopers Australian Performance of Manufacturing Index rose by a seasonally adjusted 6.1 points in July to 44.5.

The index remains below the 50 point level separating expansion from contraction, but is at its highest since September 2008.

The total number of job advertisements in Australian newspapers and on the Internet fell 1.7% in seasonally adjusted terms in July from the previous month.

Building approvals rebounded in June, but economists said concerns about housing supply constraints and the potential for overheated prices in the future are set to persist.

The total number of houses and apartments approved for construction rose a seasonally adjusted 9.3% in June from May, the Australian Bureau of Statistics said. It was the largest monthly rise since November 2008.

Economists had expected on average that total residential building approvals rose 8.0% from the month before. The rise mostly recovered an 11.0% fall in May.

Australia's consumer price index fell to a 10-year low in the second quarter but there was enough in the data to stoke concerns that the Reserve Bank of Australia will abandon further interest rate cuts.

Australian bond yields rose sharply and the Australian dollar rallied on the back of the inflation numbers, which showed core inflation still uncomfortably high in the quarter. Core inflation, which is crucial to interest rate policy making at the RBA, rose 0.8% in the second quarter, slightly more than was expected by financial markets.

Australian business confidence jumped back into positive territory for the first time since December 2007 in June, driven by improving sentiment in manufacturing and finance, while business conditions also continued to surge, a survey showed.

According to a monthly survey by National Australia Bank, business confidence rose 6 points in June from May to a reading of 4 points, its first positive reading since December 2007. Business conditions rose 12 points on-month to minus 2 points, NAB said.

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<?xml:namespace prefix = st1??> Australia's job market deteriorated in June, although not as badly as economists feared, showing that domestic demand is holding up better than other advanced economies but still supporting the case for the central bank to cut interest rates again this year.

Australia's unemployment rate rose to a lower-than-expected seasonally adjusted 5.8% in June from 5.7% in May, its highest reading since October 2003. The number of employed fell 21,400, the Australian Bureau of Statistics said.

The number of housing-finance approvals in Australia rose a seasonally adjusted 2.2% in May from April, the Australian Bureau of Statistics said.  Economists surveyed ahead of the announcement on average had expected a rise of 1.5% in May.

The value of investment housing loans in May rose 2.4% from April.

The bureau said its trend estimate for the number of housing-finance approvals, which further smoothes seasonally adjusted data, rose 2.2% in May from April.