MELBOURNE: Australian shares finished 1.1 percent higher on Tuesday as investors focussed on the increasing evidence of a US recovery with no fresh bad news from Europe.
The local market played catch-up with US gains after slipping on Monday, helped by a positive outlook for metal demand from top US aluminium producer Alcoa Inc that defied gloom among its peers.
"It has the feel of a bit of strength to it," said Prasad Patkar, a portfolio manager at Platypus Asset Management.
Weaker-than-expected Chinese trade data on Tuesday did not rattle the market. If anything, it helped sustain the day's gain with investors hoping China would stimulate growth, which in turn would boost demand for metals.
Dealers expect US reporting season and news out of Europe to drive the market in the near term.
If Europe makes progress in sorting out its debt woes, then investors will be able to focus on fundamentals, which are not too bad, Patkar said.
"If the fundamentals are not looking half bad, then the markets are cheap, so by definition there's support for them and a decent enough catalyst for them to rally," he said.
Credit Suisse was less sanguine about the fundamentals and predicted the S&P/ASX 200 could slide to 3,500 in the next few months seeing the European crisis sparking a credit crunch and denting global growth.
"We believe that global de-leveraging pressures are still too great to ignore and that deeper valuation discounts are required to compensate us for these risks," Credit Suisse's equity strategists Atul Lele and Damien Boey said in a note.
The benchmark S&P/ASX 200 index gained 46.8 points to close at 4,152.2, recouping losses from the past two sessions.
Top global miner BHP Billiton rose 1.3 percent, while Rio Tinto rose 1.7 percent, while smaller miners jumped more than 2 percent.
The big four banks rose between 0.6 and 1 percent.
New Zealand's benchmark NZX 50 index fell 0.6 percent to close at 3,228.0.
Beleaguered Pacific Brands was the top gainer, soaring as much as 20 percent and closing up 14.3 percent at A$0.64, valuing the Bonds underwear maker at A$584 million, after saying it was in talks on a buyout approach from US private equity giant KKR & Co.
A newspaper said an offer could be worth around A$600 million ($614 million).
Spotless Group fell as much as 5 percent after its private equity suitor, Pacific Equity Partners, balked at offering the A$743 million that the cleaning services group wants. But investors bet PEP would not walk away, supporting the stock to close down 0.8 percent at A$2.35.
Alumina Ltd jumped 6.85 percent to A$1.17 after its partner Alcoa gave a positive outlook for global demand for aluminium, particularly in the aerospace and automotive sectors.
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