Close Australian stocks have posted their biggest one-day gain in nearly three years, rebounding strongly on hopes that European officials would find a way to cut Greece's debt and shore up European banks.
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At the close, the benchmark S&P/ASX200 index was up 140.7 points, or 3.6 per cent, at 4004.6, its biggest one-day gain since late November 2008, while the broader All Ordinaries index jumped 135.9 points, or 3.5 per cent, to 4063.5.
The rise added about $40 billion in value to the local market.
The Aussie dollar also benefited from the resurgence of risk appetite, rallying to 98.65 US cents, up from 96.47 cents late yesterday.
Stocks rebounded from their two-year low at the open after European and US markets rallied on speculation European leaders would employ fresh measures to counter the Greek debt crisis and avert a global recession.
To the surprise of market sceptics, the local bourse extended these gains to the close, which CityIndex chief analyst Peter Esho said was a ‘‘strong signal’’ the market had bottomed out from last week’s severe losses.
Media reports on the weekend suggested EU policy makers had plans to use the EU rescue fund to recapitalise vulnerable euro-zone banks.
‘‘The market is looking at the idea as a viable option to ensure stability and to establish a controlled financial environment,’’ CMC Markets trader Ben Taylor said. ‘‘The proposed asset relief idea should give Euro banks the chance to discard some of their bad investments and raise capital to suitable levels.’’
Mr Taylor said he expected investors to push money back into the markets over the next fortnight.
‘‘As a large amount of cash is currently sitting on the sideline, we are being paid a huge premium to take a ’risk down’ approach at these levels,’’ he said.
Miners surge
Materials, which closed 3.9 per cent lower on Monday, were the strongest performing stocks, with the sector rising 4.95 per cent.
Mining giant Rio Tinto gained $3.22, or 5.4 per cent, to $63.42 after it bought several iron ore deposits in the central Pilbara in Western Australia for $32 million, while fellow miner BHP Billiton rose $1.40, or 4.1 per cent, to $35.35.
Mr Esho said materials stocks looked to be bottoming as silver and gold prices bounced back from last week’s lows.
Australia’s biggest gold miner Newcrest Mining, which was the worst performer among the top 50 companies at the close yesterday, rose $1.56, or 4.8 per cent, to $34.42.
Westpac leads banks
The local financial sector gained 4.3 per cent, with all of the major retail banks ending the day more than five per cent higher except Commonwealth Bank, which closed up 3.9 per cent at $45.55.
Westpac gained $1.06, or 5.5 per cent, to $20.25 after cutting the interest rates on several fixed rate home loan products in line with a growing trend as expectations of a Reserve Bank of Australia rate rise weaken.
Telstra rose 2 cents to $3.06 after it announced it was launching its 4G mobile network, which would enable access to some of the fastest mobile download and upload speeds available anywhere.
Rare earths minerals explorer Lynas Corp was the strongest stock of the ASX’s top 100 companies, soaring 34.9 per cent to $1.18.
Biopharmaceutical company CSL was one of the few red spots and the worst performing stock among the top 100, shedding 1.3 per cent to $2.29.
Turnover was 2.34 billion shares changing hands for $6 billion, with almost nine of every ten stocks rising.
'Knee-jerk reaction'
Despite the strong gains, some analysts said there was still plenty of scope for disappointment if policymakers did not resolve liquidity and solvency issues in Europe.
"It's a knee-jerk reaction to the world failing to come to an end last night," said E.L. & C. Baillieu Stockbroking director Richard Morrow. "It is a reversal and I don't see it lasting. The market has been as gloomy as I can remember since the last days of 2008."
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BusinessDay with agencies