Australian shares rallied to their biest one-day gain since October 1997 after renewed efforts by governments at home and abroad to bolster banks sparked renewed confidence in financial stocks and big miners.
Bank stocks were among the biggest gainers today after $190 billion was erased from the Australian stock market last week.
The benchmark S&P/ASX 200 index ended the day up 220 points, or 5.6pc, to 4,180.7 points on their best day since the Asian financial crisis a decade ago.
The spurt recovered most of Friday's 8.2pc rout.
The Australian dollar, meanwhile, pared gains, to trade recently at US 66.06 cents, after earlier hitting US68c.
Against Japan's currency, it advanced 66.06 yen, also off its morning highs of 68.80 yen.
Movements on overseas markets provide some cause for optimism that today's share market gains will be sustained.
Most Asian markets were trading higher, with Hong Kong's main index up 3pc.
Dow futures are also pointing to a gain of 323 points, or almost 4pc, to 8693, for Wall Street when it opens later tonight.
Confidence in Australian banks was buoyed by Prime Minister Kevin Rudd's announcement yesterday that all deposits in Australian financial institutions would be guaranteed for three years.
Mr Rudd said the guarantee was aimed in part at ensuring Australian banks would not be at a disadvantage if overseas rivals got government backing and capital injections, as is planned in Europe and elsewhere.
European leaders overnight unveiled a combined effort to restore market confidence.
Almost all sectors of the market were trading higher, with the financials leading the way, gaining about 7.7pc overall. The materials sub-index jumped 6pc.
"The banks are definitely leading this market higher and it's all in reaction to the guarantee plans that have been announced by the federal government," EL&C Baillieu director Richard Morrow said.
Economic figures out today, though, underscore the fragility of domestic demand.
Jobs advertised online and in newspapers fell 1.4pc in September, for the fifth consecutive month, according to the ANZ Bank.
"Heightened financial market volatility, falls in global equity and commodity prices, and uncertainty over the global economic outlook have intensified over the past month," ANZ economist Warren Hogan said in a release.
"ANZ has revised forecasts for unemployment in Australia and now expects the unemployment rate to rise to around 5.75pc over the second half of 2009."
With such economic gloom spreading, analysts cautioned that the morning's strong rallies may fizzle.
"There's a good chance it will head down again," said James Drohan, private client adviser, at Ord Minnett.
"I don't think there has been enough definitive action by global leaders to give investors the confidence that they are looking for."
Mr Drohan pointed to falling commodities prices as evidence of the negative view that has pervaded markets.
As investors look beyond the flurry of rescue packages and deposit guarantees, they will have to take into account the impact of much slower growth on companies' profits, analysts said.
"The current debacle is going to drive the global economy into recession," said TD Securities global strategist Stephen Koukoulas in a note to clients over the weekend.
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