Here's why the S&P/ASX 200 is being stretched today

The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is stuck in a tug-of-war battle between the big banks, led by Westpac Banking Corp (ASX:WBC), and the miners, driven by BHP Billiton Limited (ASX:BHP).

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It's been a topsy-turvy day for the Australian sharemarket today with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) being pulled in a tug-of-war battle between the nation's largest miners and its major banks. So far, it seems as though the miners are winning with the index trading almost 0.2% higher at 5,824 points.

Australia's iron ore miners have continued to rally in light of news released late last week by the Brazilian-based behemoth, Vale. Following the lead set by BHP Billiton Limited (ASX: BHP), Vale said that it would consider restricting its production growth temporarily in order to bolster its own margins – a move that would lessen the burden on the crumbling iron ore price.

With the commodity now hovering around the US$56 a tonne mark, according to the Metal Bulletin, investors are becoming increasingly confident that it can sustainably climb beyond the US$60 a tonne mark. The sector's momentum has carried forward into this week with BHP and Rio Tinto Limited (ASX: RIO) rising 2.1% and 2.4%, while Fortescue Metals Group Limited (ASX: FMG) has lifted another 3%.

Indeed, Telstra Corporation Ltd (ASX: TLS), Woolworths Limited (ASX: WOW), Wesfarmers Ltd (ASX: WES) and CSL Limited (ASX: WES) are also providing plenty of support for the local bourse, likely on expectations of an official interest rate cut when the RBA meets tomorrow. Each of the stocks are trading between 1% and 1.8% higher.

Ordinarily, the Big Four banks would also be firming on such interest rates speculation, but a disappointing earnings report from Westpac Banking Corp (ASX: WBC) this morning has instead seen the banks plummet.

Westpac's half-year profit came in well below expectations while investors were also disappointed by its lack of dividend growth. The stock tumbled 3.5% (an improvement from its 4.9% decline earlier in the day) and was followed by National Australia Bank Ltd. (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking which retreated between 1.1% and 2.5%.

Indeed, Westpac's latest results don't fare well for its rivals — all of which will provide earnings updates soon. If the Big Banks fall, one does have to wonder what that would mean for the sharemarket as a whole…

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned. You can follow Ryan on Twitter @ASXvalueinvest. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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