It was the biggest one-day gain since Sept 1. Still, trade was light with Sydney closed for a bank holiday.
US President Barack Obama announced that Democrat and Republican leaders have reached an agreement to reduce the US deficit to avoid default but the deal still needs approval in both houses on Congress.
The major banks, which have been heavily sold off in recent weeks as the prospect of a US default drew closer, led the gains with rises of between 2.4 percent and 3.0 percent.
The benchmark S&P/ASX 200 index advanced 85.3 points to 4,509.9.
On Friday, the index fell to its lowest close in 11 months as the US debt negotiations dragged on, although for the month of July the index eked out a gain of 0.4 percent.
New Zealand's benchmark NZX 50 index added 0.8 percent to 3,421.4.
Shares in Macarthur Coal rose 1.5 percent, little changed from earlier, to A$15.85 before Peabody and steel-maker ArcelorMittal went hostile in their A$4.7 billion ($5.2 billion) bid.
Copyright Reuters, 2011