SYDNEY: Australian shares firmed from a 26-month low to trade 0.3 percent higher by mid-morning as reports that European leaders were discussing bolder measures to contain the euro zone debt crisis gave investors some relief.
However, the market pared back an earlier 1.3 percent jump with the mood among investors remaining cautious.
Major banks led the recovery with Westpac up 1.8 percent although miners tempered the rises with a sliding gold price hit companies like Newcrest Mining which lost over 3 percent.
Investors reacted cautiously to reports that German and French authorities were working on a rescue plan to stop fallout from Greece's near-bankruptcy spreading.
"We believe this type of plan would be seen as a credible solution to the crisis. However, this plan is still only in the 'rumour' stage, and it may face some tough hurdles in order to be passed by all EU authorities, indeed headlines are already suggesting some German dissent," ANZ chief economic Warren Hogan said.
The benchmark S&P/ASX 200 index was trading 9.4 points higher at 3912.6 by 0120 GMT, paring back some early gains.
The local bourse fell 1.6 percent to a 26-month closing low on Friday in its third straight week of declines.
New Zealand's benchmark NZX 50 index slipped 12.9 points to 3269.955.
STOCKS ON THE MOVE
Bow Energy shares rose 1.4 percent to A$1.48 after Arrow Energy raised its offer for the company to A$1.52 per share. Arrow is a venture between Shell and PetroChina . Their bid values Bow at A$535 million.
Shares in toll-road operator ConnectEast were placed in a trading halt ahead of a shareholder vote this week on a $2.3 billion takeover bid from infrastructure investor CP2. Local media reports said the shareholder vote was expected to be close and it was still unclear whether the deal would be approved. The stock last traded at 48.5 cents compared to the 55 cent per security offer.
Major banks rose led by Westpac which added 2.6 percent to A$19.22. Commonwealth Bank rose 1.8 percent to A$44.10, while National Australia Bank rose 1.3 percent and ANZ increased .9 percent.
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