Australian stocks close 2.6pc higher

At the close, the benchmark S&P/ASX 200 was up 106.5 points at 4,141.3 after the US Federal Reserve said it expected to maintain interest rates at ultra-low levels for the next two years.

It followed a stunning turnaround on Tuesday when the Australian bourse recovered from a more than 5.5 percent slump to end in the black.

"The late overnight surge on Wall Street has been enough of a catalyst to see local investors resume their buying," said IG Markets analyst Ben Potter.

"Gains for the day are broad-based with all major sector indices in positive territory."

But he warned investors that despite US Federal Reserve chairman Ben Bernanke's comments on interest rates, nothing had really changed with slowing US growth and European debt contagion still present.

"As is nearly always the case after big short covering/relief rallies, we've had plenty of people asking whether this is the bottom," he said.

"Whilst we could have seen a low, experience would tell us that one bounce doesn't miraculously solve all the original problems the world was worried about."

After dropping back below parity with the greenback for the first time since March on Tuesday, the commodities-linked Australian dollar continued its comeback.

In late trade it was at 103.29 US cents, up from 102.25 cents on Tuesday.

Copyright AFP (Agence France-Presse), 2011