Posting a spurt in the final minutes of trade, the benchmark S&P/ASX 200 index gained 4.2pc, or 194.1 points, to the day's high of 4794.6, making up nearly all of yesterday's 4.3pc slide.

CMC Markets Dominic Vaughan said the local market was having a "nice corrective bounce" after yesterday's huge loses.

"The heavily hit resources sector is the main driver of the day and we are seeing a bit of recovery in the banks," Mr Vaughan said.

"Whether we maintain this momentum remains to be seen, it's good to see a bit of buying."

Mining giant BHP Billiton soared 5.7pc, or $1.75, to $32.75, while rival Rio Tinto jumped 12pc, or $10.50, to $95.00. Australia's competition regulator today approved BHP's bid for Rio.

Shares in Fortescue climbed 14pc, or 65 cents, to $5.31.

The major banks were among the gainers with Westpac shares rising 8.2pc, or $1.77, to $23.25, Commonwealth Bank up 5.3pc, or $2.24, to $44.86 and ANZ rising 2.9pc, or 55 cents, to $19.30. NAB shares climbed 5.9pc, or $1.44, to $25.70 and Macquarie gained $1.25, or 3.4pc, to $38.25.

Although results were mixed, most agricultural companies also recovered with AWB gaining 22c to stand at $3.00; ABB jumped 49c to $8.40; AA Co lost 8c to $2.62; NuFarm gained $1.15 to be trading at $16.30; Futuris was up 5c to $1.46; and GrainCorp finished unchanged at $7.50 despite rising to $7.85 during morning trade.

"The real problem is not a stock market problem it's a credit market problem," said James McGlew senior dealer at Argonaut Securities.

"There is no question fear has overcome all rationale at the moment."

The underlying issue is the complete collapse of the credit market which is creating a domino-effect of banking failures. The volatility its generating is unprecedented, he said.

In the past week US retail bank Wachovia sold its banking operations to Citigroup, while Dexia had to be bailed out by the Belgian government. UK's Bradford & Bingley was also nationalised by the British government.

"We've never seen this before. It outstrips 1929," he said.

"In the short terms the issues that confront the US at the moment have to be addressed and they have to be addressed very quickly."

US lawmakers have vowed to take up the bailout plan in coming days with the Senate agreeing to vote on the package on Wednesday night US time.